It's obvious the Fair Isaac does not want people to know how the credit score is. We are now at FICO 9 Score system and the break down on their website is still 10 years old.
But, we can learn from the old system and then take into consideration the new factors.
Maintaining a peak credit score is an absolute must, yet I was at a bankers association meeting recently and experts in the industry could not guess from Fair Isaac's examples, who would have the better score (a grandmother who low balances, great payment history, a person with some negatives but good payment history) for example. You would guess the grandmother but in this case it was the other person. When the representative from Fair Isaac did her presentation, it was a lot of complex algorithms that their system takes into factor when calculating a score.
The moral of the story is: don't really believe all the propeganda they are preporting recently to try to clean up their tarnished image.
So what are some of these components, because many people don't understand what they are and what to do to fix them.
So here we see the old classic scoring model. Let's break it down a little bit.
Payment history : Are you paying things on time, if you show late payments, and lower payments than normal, this will effect your score. Removing lates and payment history data from the credit report, is a method our system uses to regain this piece of the pie. Having no late payments Fair Isaac (FA) reports does not gaurantee a good score. However cleaning this up will help tremendously. But its not only about lates and paying on time, public records and collections effect this piece of the pie more and weigh heavier.
They forget to tell you that if you pay more than your minimum due each month before the 20th of the month that this can help increase your score.
Our system will help correct payment history, remove lates, remove negative items and help you to regain this piece of the pie.
Amounts owed: Not only the amount, but the different types of amounts owed effect your score, i.e. credit card vs installment etc. But also, Having a low credit utilization ratio can be better than having a high one, or none at all.
Closing unused credit accounts that have zero balances and are in good standing will not raise your FICO® Score. This is a myth in the mortgage, financing and real estate world, they think paying all your balances to zero and closing them will help. This is false information.
With the Obama credit card reduction act, paying to a zero balance, may cause the lender to close the account, just as paying it down they may lower the limit.
A larger number of accounts with amounts owed can indicate higher risk of over-extension.
How much of the installment loan amounts is still owed, compared with the original loan amount, if you still owe more than 80% this will lower the score, but paying it down will show you are able and willing to manage and repay debt.
Credit available: This is the other factor in this big piece of the pie and 10% of the 40% bleeds into other pieces of the pie. So for example you have in credit card debt $10,000 and only $12,000 in limits. Not only does this show you are higher risk, it also shows you are not able to manage maintaing a lower debt usage and keeping a higher credit availablity in this example $2,000 which is 83% in debt. Now you pay this down to $10,000 available, only $2,000 in debt and add a second tradeline or credit option of $5,000. Now you have $15,000 available to $2,000 in debt this is a much better debt to credit ratio and will significantly increase your score. Depending on other areas of your report, it can increase your score from 50-200 points or more.
Another factor that people don't take into consideration in this piece, is when they begin to clean up the negative and pay down the debt, if they don't have enough credit available, instead of seeing the score increase because they are removing negatives and debt, the score drops dramatically or even goes to zero. This is why we always recommend making sure you have enough available credit FIRST and a good debt to credit ratio.
Our systems help you obtain the types of credit / tradelines needed to boost this piece of the pie.
Length of Credit: "In general, a longer credit history will increase your FICO® Score. However, even people who haven't been using credit long may have a high FICO Score, depending on how the rest of the credit report looks. Your FICO Score takes into account:
-how long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts
-how long specific credit accounts have been established
-how long it has been since you used certain accounts" - FA
Ok that is some FA jargon that is vague like the rest of their system. Simply put they are taking all these factors, some of them include how many new recent credit accounts were open, if you open more than 3 in a short period of time, that may indicate a risk that you are going to get yourself in trouble. Also balance transfers do not effect this, so obtaing some of our credit options and doing a balance transfer to a account with lower intrest will actually help.
Our system helps fix errors that help you recover this piece of the pie.
Types of credit: (in use) They look a mix of different types of credit, this is were debt to credit ratio can bleed over. Also they forget to tell you that if you have credit you are not using at all can effect your score, you need to use a minimal amount like one to five percent. Are you only limited to one type of credit this effects your score. Your FICO® Score also looks at the total number of accounts you have. How many is too many will vary depending on your overall credit picture. Closing an account doesn’t make it go away. A closed account will still show up on your credit report, and its history will be considered by your FICO Score.
Our system helps provide the right kinds of credit that help you with this piece of the pie.
New Credit: Research shows that opening several credit accounts in a short period of time represents a greater risk - especially for people who don't have a long credit history.
Checking your credit report won’t affect your FICO Score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers, but a hard inquiry like from a lender will effect your score. Also your score may differ because your lender may use a different score provider, but the difference is not much.
If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly.
Inquiries (are supposed to only) remain on your credit report for two years, although the FICO® Score only consider inquiries from the last 12 months. They also hurt this piece of the pie. Removing ones you did not authorize and stopping unauthorized inquiries is a tool our system uses to help you regain this piece of the pie.
Our system also helps you pay down your debt and helps you capture pieces of the pie back.
To summarize, "fixing" a credit score is more about fixing errors in your credit history (if they exist) and then following the guidelines above to maintain consistent, good credit history. Raising your score is easy if you just follow our system.
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