How To Raise Your FICO Score
One is looking to buy a home, apply for a credit card or apply for a line of credit. But, something on your credit file is causing your loan request to be declined. The lender tells you, just as he is required that the loan is declined because of negative information on your credit file. Now, you need to raise your FICO score, but how? Before telling you how to build a better FICO score, one needs to understand how a FICO is determined in the first place.
One’s FICO score is determined by a variety of factors:
- Length of time credit has been established
- Types of credit one has
- Credit limits
- Debt load being carried
- Age of oldest ACTIVE credit
- Negative credit lines (i.e.-charge offs, delinquent accounts, judgments, liens, etc.)
- Obsolete or inaccurate credit information
Length of Time Credit has Been Established
These are by no means all of the factors that a lender uses to determine credit worthiness. If you have established credit since you became an adult (usually age 18), this can both work for you and against you. The positive aspects of having established credit at such young an age shows the lender that the potential for you to be responsible, financially, is high.
The problem becomes apparent. Most 18 year old people are of college age and do not always exercise the best judgment in regards to money matters. Student loans are the primary form of credit that most young people establish at this age. Since their focus, hopefully, is on their studies, repaying their loans do not become an issue until after they have graduated.
It is imperative that the borrower keep in contact with their lender and possibly refinance these loans into a single monthly, affordable payment to prevent slow pays and defaults. A default on a student loan is, in most cases, the death knell for many kinds of credit, especially home ownership. Most student loans are backed in some form or fashion by the government. If one has a default on these loans, the possible lender thinks in these terms,”if the borrower hasn’t paid the government his loans for school, what causes me to believe he will pay me?”
The government is ALWAYS in first position in terms of credit. That means that the government gets paid before any other debt is paid. An example would be a person on Social Security who owes back IRS taxes. The taxes are pulled out of the person’s check first and the client receives the balance. It is imperative that all of the credit lines that are open, with balances, be paid. Any old or inactive lines should be either removed or show zero balances.
I have seen many credit reports where there are very old credit lines that show a balance but the last active date was many years prior with a monthly payment. This needs to be corrected, otherwise, one could find that not only are the FICO scores inaccurate, but the Debt to Income ratios inaccurate as well.
Types of Credit: Secured and Unsecured
There are two types of credit, secured and unsecured. Secured credit is that tied to a home, automobile, boat, stocks, bonds, etc… anything that can be physically seized in the event of a default by the lender.
Unsecured debt is that debt which is tied to one’s signature, like credit cards, lines of credit, store credit cards, etc. After paying the government (incidentally, child support IS a government lien, on one’s name… one MUST pay child support obligations on time every month and in full), the very next debt(s) to pay are secured loans.
Failure to pay mortgages, home equity loans, home equity lines of credit, automobile loans, etc is a major problem. Even paying a secured loan late can be the difference between a 600 and a 650 FICO score, which has a huge affect on the mortgage payments.
The next ones to track and pay on time are unsecured loans. Please keep in mind that there are no absolutes when it comes to paying these debts. If there is a legitimate reason for a late pay on any of these debts, one MUST let the prospective lender be aware of this.
Too often, a loan is declined because of inaccurate information on the credit file or because there were extenuating circumstances causing the slow payments. Medical emergencies happen, unforeseen problems occur and lenders and underwriters are aware of this fact. The Free FICO Repair Workshop – Continue To Part 2.
So What is The Next Step?
If you will do nothing.. don’t expect anything to happen.
If your score is below 700, you might want to clean it yourself – get this ‘Credit Repair University’ which will save you money and time.
Yes, you might need to invest a small sum to get a grip of things.. But if you think education is expensive.. try ignorance..
You are probably paying thousands of dollars per year in fees and interests to credit companies which could be going straight to your pocket. So do your math…