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Tag Archives: FICO
How mortgage lenders (or consumers!) can quickly raise a borrower’s credit score.
In recent years, the housing market has benefited from historically-low interest rates, widely accessible to most homebuyers and homeowners even if they didn’t have the highest credit scores.
However, times are ‘a changing, and with interest rate hikes and storm clouds on the economic horizon, it’s not unrealistic to think that we may see a market – and financial – tightening within a couple of years. While loan officers and mortgage brokers have their fingers on the pulse of these changes as they occur, there is one thing that will return to relevancy: credit score.
In fact, when a borrower or home buyer comes to you and applies for a loan, the difference between a 720, 680, or 620 FICO will make a huge difference in what loan programs they get approved for, and the interest rate. Furthermore, your clients will be able to afford more home when buying, save a lot when refinancing, and generally have better options.
But you don’t want to wait six months to a year to organically improve their credit score (nor will they wait around!). Luckily, we have some tactics and strategies that can help improve a consumer’s credit score in short order. In this blog, we’ll bring you the first five strategies, and look for the next five in our upcoming blog.
And you can always contact Nationwide Credit Clearing for more information on how to improve your credit score (or your client’s score) quickly!
1. Pay down balances quickly.
We know that the ratio of your debt to total available credit – called credit utilization ratio – makes up about 30 percent of your credit score. Therefore, people with maxed out credit cards or high debt loads compared to their available credit will see their scores steadily sinking.
So, the first thing you want to do when improving your credit score is to pay down as much debt as possible.
It’s important to get your credit utilization ratio below 30 percent (so you only owe $3,000 or less on a credit card with a $10,000 available balance). Credit experts even suggest keeping a utilization ratio of 10% or less to achieve a great credit score. However, don’t go all the way to 0% because it won’t show an established payment history they can use in their calculations (since you won’t have any payment).
2. Call today and request a credit line increase.
Don’t have enough money sitting around to pay down your credit balances enough to raise your scores? Another sneaky-good way to improve your credit utilization ratio – without paying down one cent of debt – is to increase your total available credit. For instance, let’s say you had a $10,000 credit line but owed $4,000 (so your utilization ratio was 40 percent).
Instead of paying down your debt, if you could get the credit card company to increase your available limit to $15,000 from 10k, your utilization ratio just went down to about 27 percent – and your score would go up! To do this, simply call the credit card company or lender and make your case over the phone and they’ll either approve or deny your request or approve a lesser increase.
3. Remove authorized-user accounts that are hurting their score ASAP.
Many times, a borrower agrees to become an authorized user on someone else’s credit account to help that person qualify for the loan, whether it’s a credit card, an auto loan, or even a business obligation. However, if that person misses a payment or otherwise mismanages that account, the borrower’s negative hit will affect your credit score, too. Thankfully, it’s easy for us to help your borrower remove themselves from the credit account in question. It usually only takes a call to the credit card company or bank with a formal request that they’re removed from the account, as well as the item deleted from their credit report, removing the negative reporting item and improving their score.
4. Consolidate accounts – virtually overnight.
A good number of consumers find themselves with multiple credit cards or accounts from the same bank. Even if the name on the card is different. By consolidating these multiple accounts with the same parent company into one, it may help their credit score take a big jump forward. That’s the case especially if they can consolidate a newer account with an older one, which will then report as a well-seasoned account. However, we do need to carefully mind their credit utilization rate to make sure this move will positively impact their score, but it can really assist some borrowers, virtually overnight.
5. Dispute any errors or bad information on your credit report.
Most people don’t realize that credit reports often contain mistakes, misreporting, duplicate items, or outdated information. All of these things may be lowering your score, but they can also be removed. Start by contacting Nationwide Credit Clearing for a copy of your credit report, and we’ll help you review it carefully for any errors or inaccuracies.
By reviewing it line-by-line, we’ll be able to highlight inaccuracies or items that are lowering your score. Remember that there are three major credit bureaus and they each may report different information, so it might be a good idea to check all three. Look for errors on larger accounts first, length of history, payments reporting on time, and that your balances are accurate.
The last step is formally disputing each inaccuracy or error with each of the credit bureaus, Equifax, Experian, and TransUnion, separately. They are legally obligated to get back to you in a certain amount of time with proof that the information you’re disputing is correct – or they have to change it or remove it.
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If you have more questions about improving a borrower’s credit score quickly, contact Nationwide Credit Clearing for a free credit report and consultation.
The 5 Factors That Go Into Your FICO Score
Your FICO® score is a major factor when it comes to getting approved for a loan or new credit. In fact, the Fair Isaac Corporation (FICO) is used by 90% of top lenders and banks around the country to help gauge whether you’re a good candidate for new credit, as well as the interest rate they’ll offer. In total, it’s estimated that FICO scores are used for up to 10 billion decisions about credit around the world each year!
However, FICO has closely guarded their credit scoring algorithms, so we don’t know exactly how their computations will raise or lower our scores. But the good news is that FICO does publicize the specific factors that play into a credit score.
“FICO scores give the most attention to how you have paid back lenders in the past,” says FICO spokesman Craig Watts, “and how much you are using of the credit available to you, as shown on your credit report. Those two factors contribute roughly two-thirds of a typical person’s FICO score.”
Let’s take a closer look at those five factors that go into your FICO score:
Payment History
35 % of your total FICO credit score.
The single most important factor that influences your FICO score is your record of replaying past debts. This makes perfect sense, considering that past behavior of paying off debts on time and in full is the biggest predictor of future repayment.
When it comes to your payment history, FICO looks at both revolving loans, such as your credit cards, and installment loans, like mortgages or student loans. In fact, we do know that your FICO score will drop more if you miss a payment on a large installment loan, like your home mortgage, over a smaller credit card, for instance.
To achieve a great credit score:
The single best way to improve your FICO or keep it high is to make all of your payments on time every single month.
Credit Utilization
30 % of your total credit score.
Almost as prevalent as payment history is your credit utilization, or the percentage of available credit compared to what you already owe. Creditors are wary to lend more to consumers who consistently max out their revolving accounts and consistently spend up to their limit without a buffer. Their research shows that these folks are more likely to miss payments or default in the future f they’re already constantly spending every dollar they have available as credit.
To achieve a great credit score:
Common advice is to keep all of your credit cards and revolving debt at around 30% of the total available credit. However, FICO’s research shows that borrowers with the highest credit scores tend to have a credit utilization ratio around 7 percent or so.
Length of Credit History
15 % of your total credit score.
All accounts aren’t created equal when it comes to credit scoring, with the accounts that have been open the longest helping your score more than recently opened ones. This factors into your length of credit history, as well-seasoned accounts are a better indicator of a consumer’s responsible payment pattern. Therefore, even if they’ve never missed a payment or done anything wrong, a borrower with only new tradelines on the credit report will never have a perfect score.
To achieve a great credit score:
Make sure to keep older accounts in good standing and think twice about paying off and closing any well-seasoned accounts (including with balance transfers), as it may hurt your score.
New Credit
10 % of your total credit score.
About 1/1oth of your FICO score is determined by what kinds of new credit you’re adding – and applying for. When consumers start applying for credit cards and other credit too often within a short period of time, it indicates financial desperation or risky spending patterns, and their score may drop accordingly. The exception is when borrowers are applying for a big purchase like a mortgage or auto loan, as it’s expected that they’ll “shop around” a little.
To achieve a great credit score:
Don’t apply for new credit frivolously, and mind the quality of the new tradeline, too. Just because every retail store, department store, and credit card mailer is offering you more credit, you probably don’t want to take it.
Credit Mix
10 % of your total credit score.
To show a healthy mix of credit and financial acumen, FICO looks for a mix of different credit accounts, including credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. If a consumer has all credit cards, for instance, it may indicate a risky imbalance, and their score would be dinged accordingly. FICO’s data has shown that if a borrower has a good mix of credit, they have a higher chance of paying on time in the future.
To achieve a great credit score:
Take a look at the type of credit accounts on your report and balance it out with an installment loan, paying off an unneeded credit card, etc.
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We now know the five factors that go into your FICO score, and what best practices to follow to keep a great credit score. However, your situation could be a little different based on what’s on your credit report and your credit history, so you should get help from a credit professional to maximize your score.
If you’d like help with your FICO score, contact us for a free consultation today!
