A few FICO Tips

FICO scores are top secret. The rating is based on all of the credit-related information contained in the credit report. However, other than the folks who created the scoring system, no one seems to know for sure how many points each factor is worth. But despite the fact that no one but Fair, Isaac, & Company know exactly how the credit-scoring method works, there still seem to be some prevailing ideas about how you can raise your FICO score. So take advantage of these tips to give yourself a boost:
  • Review your past payment history on your credit report. Bankruptcies, foreclosures, collection accounts, and delinquencies will certainly cost you major points. If there are any incorrect or inaccurate entries on your report, notify all three credit bureaus immediately – Experian, Equifax, and TransUnion. Do this before you apply for credit, because your payment record carries the most weight toward your score.
  • Scores are lower for consumers with no bank credit cards and those with five or more bank credit cards. Therefore, two to four cards are a good amount to have. If you decide to close any accounts, do not close your oldest accounts. The more time you've held an account (possibly even a bad one), the better it is for your score; it makes your overall history of credit longer.
  • How much debt you carry on your credit cards and other accounts is the second biggest factor in determining your score. If your total debt is more than 50 percent of your total credit limits, your score may begin to feel the effects; if your total debt is 75 percent of or more, your score will definitely suffer. So keep your account balances well below their limits.
  • Avoid frequent inquiries. According to score models, the risk of default appears to rise after two- to four inquiries within a six- to twelve-month time period. However, you are not charged an inquiry when you order your own credit report.
  • Opening several new credit card accounts within a short period of time can hurt your score. If you have high balances on these new cards, your score may be lowered further. Try to limit yourself to opening only one or two lines of new credit within a two-year period.
  • More recent negative entries on your credit report are worse than problems that occurred years ago. An account that's been delinquent in the past six months will typically hurt you more than a bankruptcy from five years ago. Score models generally suggest that problems from more than two years prior won't hurt your score as much as more recent ones.
  • Loans from finance companies will tend to lower your credit score because they're viewed as a last resort to get cash and charge extremely high interest rates.
  • If you're having trouble paying your bills, prioritize them to avoid severe damage to your credit report. For instance, pay your mortgage first, then your car payment, followed by payments on your credit cards and other revolving accounts. Don't make partial payments unless the creditor agrees to it and won't report the payments as late.