Your Credit Record
by Debra McCann
Your FICO Score
Your credit score influences the credit that’s available to you and the interest rate that lenders offer you. The cost of bad credit when financing a home can be substantial since you may have to pay a higher interest rate. This can add up to thousands of dollars each year. Following are the main categories that FICO scores evaluate and their percentage of importance.
35% Payment History
Late payments, collections, and bankruptcies all affect the payment history of your credit score. More recent delinquencies hurt your credit score more than those in the past.
If you have past due balances, I suggest paying them first and keeping them current. Then pay collection agencies that agree to delete it from your record if you pay them. Just paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.
30% Amounts Owed
Your FICO score takes into account the amount owed on all accounts each month. A heavily weighted factor is how much money you owe on your credit cards relative to your total credit limit. Request that your limit be raised, but don't use the available credit. Make sure that the credit limit is being reported on the bureau report. No limit being reported gets scored as though current balance is maxed out.
15% Length of Credit History
Your FICO score considers the age of your oldest account, the age of your newest account and an average age of all your accounts. Opening new accounts will lower your average account age, which will have a large effect on your FICO score. Closing older accounts will have the same effect. If you have a limited credit history you can ask someone to add you on as an authorized user. It will treat it as though it is your account and you will benefit from the low balance and the long history with that creditor. When you don’t use a credit card for six months it gets updated on your credit report as being inactive. An inactive account is ignored by credit scoring software and you won’t get the benefit of the positive payment history and low balance that card may have.
10% New Credit
Your FICO score looks at how many new accounts you have. It also considers how many recent requests for credit you have, as indicated by inquiries to the credit reporting agencies. Inqueries have a greater impact if you have few accounts or a short credit history.
10% Types of Credit
Your score takes into account what kinds of credit accounts you have and how many of each.
- Positive open and closed accounts can remain on your record indefinitely.
- Late payments remain on your credit report for two years. Deliquent accounts that are charged off remain on
your credit report for seven years.
- Accounts sent to collections will remain on your credit report for seven years from the date of the original
missed payment. The record will be marked as paid collection on your report when you pay the full balance.
- Most judgements including small claims, civil and child support remain on your credit report for seven years
from the filing date.
- Bankrupcies remain on your credit report for ten years from the filing date. When you file for bankcrupcy
all of the included accounts should be marked included in BK and each will remain on your report for seven
- Unpaid city, county, state and federal tax liens can remain on your credit report indefinitely, although
paid tax liens remain on your credit report for seven years from the paid date.
- Inquiries remain on your credit for two years, although FICO scores only consider inquiries from the past
Improving Your Credit
Improve Your Payment History
Pay your bills on time. Delinquent payments and collections can have a major negative impact on your score. If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your score. Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.
Keep Debts to a Minimum
Keep your balances below 10% and you will see a significant increase in your credit score. Learn when the cutoff date is for creditors to report to the credit reporting agencies and pay your balance before this date if you want the results to show on the following months credit report. A heavily weighted factor in your FICO score is how much money you owe on your credit cards relative to your total credit limit. Request that your limit be raised, but don't use the available credit.
Length of Your Credit History
Don't open a number of new credit cards that you don't need, just to increase your available credit. If you have been managing credit for a short time, don't open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a large effect on your score. Don't close unused credit card accounts near loan time. If you have several credit card accounts but are only using a few of them, you'll only raise your balance-to-limit ratio if you close the unused ones. You also shouldn't open new accounts when applying for a loan if possible. If you have a short credit history or very few accounts, opening a new credit line may lower your score. What's more, a new account will lower the average age of your accounts, another factor in your FICO score.