Tips on how to improve your credit score

Part 19: As part of series of articles (blogs) regarding Credit and Credit Score, here we go:

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Every effort has been made to make these articles as complete and as accurate as possible, but no warranty or fitness is implied.
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Tips on how to improve your credit score

For so many years it was a secret as to how credit scores are derived or even calculated. Though not all criteria’s and calculation algorithms are the same for all credit scoring companies, nor are all known even now, however there is enough information available to show what makes up a credit score and how much weight each category of activity will have on the score to come up with tips and tricks on how to improve your score.

Credit Score Break Down

Account history is deriving your credit score. Below we have categorized account history information according to the way it impacts your credit score:

Figure 1: Credit Score Break Down Chart

 

1.     Payment History: 35% of your credit score
Payment history measures how you have paid your debts. It accounts for many factors such as: number of times your accounts have been paid on time, were late, have been charged off; types of loans; etc…

·         Number of times and period of time in which you were late for 30 days, 60 days, 90 days, or 120 days.

TIPS: A 90-day late payment has more negative impact on your credit score than a 60-day late payment, etc.

 

·         Number of accounts and the amount of your account that went to collections.
TIPS: The number of accounts in collection (now or in the past) is more important than the dollar amounts. For example three accounts in collections with balances of $1000, $450, and $120 has more negative impact on your credit score than one account with a $2000 balance in collection,

 

·         Number of accounts and credit limits of accounts that creditors have closed your accounts, written off or settled with less than the full amount.

 

·         If you voluntarily close your account, it still will have some negative impacts on your score. Don’t close your account, if you don’t have to.

 

·         Closed accounts or settled accounts with less than the full amounts could have a major negative impact on your credit score, especially with a Mortgage loan type. If it is reported that a Mortgage loan settled with less than the full amount, it means you had a “Short Sale” which would have a major negative impact on your score and lender’s decision.

TIPS: So, if you are negotiating to pay a portion of your debt to close the account, or you have to go through a Short Sale or Foreclosure, make sure to ask the creditor to (if you can) report them in credit bureaus as “Paid in full”, “Paid as agreed”, “Paid Satisfactory”, and/or get a release of Judgment when applicable.


 

·         Types of accounts (e.g., Medical bill vs. Credit Card charge, vs. Mortgage loan)
TIPS: Payment history of a Mortgage loan has more of an impact than Credit Card Charges, which in turn has more weight than Medical Bills. For example, a $10 credit card collection account could have more of a negative impact on your credit score than an $800 medical collection.

 

·         TIPS: Repossession, Foreclosures and Short Sales in Real Estate Accounts have major negative impacts on your credit score. Try to avoid them and work it out with lenders as much as possible.

 

·         How recent the accounts were late or unpaid (e.g., 1 month ago vs., 3 years ago)
TIPS: Please note that the recent late accounts have more of a negative impact on your score than an older late account, regardless of the amount. For example, a one-dollar ($1) 60-day late fee that was reported to credit bureaus two months ago has a much more negative impact on your credit score than an $800, 60-day late fee that was reported 20 months ago.

 

Please note that, though some of the items shown on the previous two pages might be unrecognized by scoring algorithms at this time, lenders and underwriters will look at them carefully and that information will have an impact on their decisions.

 

Example of this case could be a “short sale” scenario, in which at this time there is no specific code or flag assigned for it in the credit reports. However, lenders and underwriters, by reading the comment “the account was settled for less than the full amount”, know it was a “short sale” and will take necessarily actions.

 

HOW to overcome the problems with your credit history and credit score?
Knowledge, education, awareness, practice and discipline are the essential keys to being successful on any subject. The book, "Credit Score Tips and Tricks", provides you information, tools, techniques to educate yourself and manage your credit report & credit score, and therefore manage your finances effectively at no additional cost.

I have decided to bring and share with you, chapters or sections of my book, Credit Score Tips and Tricks, as series of articles here. This is the number 19 of such a series.

I also created and manage a GROUP in ActiveRain, Credit Reports and Credit Scores, Please feel free to join and share your thoughts and experiences.

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