Credit Score FICO Guidelines

Your FICO score is a measure of your credit report that is converted into a credit score. This score is available to you for your Equifax and TransUnion credit reports, but not longer for your Experian credit report as of early 2009, according to an Experian Consumer Alert. Experian still offers its own scores, FICO scores and other credit risk scores to its business clients, and you will have access to those other scores, too.

Payment History

Your previous payment history makes up 35 percent of your FICO score, according to MyFICO. This includes positive open accounts, as well as collections, charge offs and public records such as judgments and bankruptcies.

Current Balances

The amount of money you currently owe and how many cards you have with balances make up 30 percent of your FICO score.

Length of File and Accounts

How long you have had a credit file, or the length of your credit history, and how long you have had each of your open accounts make up 15 percent of your FICO score.

New Credit and Inquires

How much new credit you have and the number of credit inquires you have had within the last two years make up 10 percent of your FICO score.

Variation of Accounts

The variation of the types of accounts you have makes up 10 percent of your FICO score. If you only have revolving accounts or retail accounts, you FICO score may be a little lower than if you had revolving and installment accounts or retail and credit card accounts.

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How to Stop Inquiries on My Credit Report

A credit inquiry appears on your credit report any time a company obtains your credit report. Each time you apply for credit, such as for a car loan or a new credit card, the business offering you credit will run a credit report that will appear as a credit inquiry on your report. These credit inquiries that you authorize are the only type that affects your credit score. Inquiries that you do not authorize will also appear on your credit report, but do not count toward your credit score. These are made by companies that seek to offer you credit services, such as pre-approved credit cards. To stop unauthorized credit inquiries from appearing on your credit report by companies soliciting your business, you must sign up for the Opt Out Program maintained by the major consumer credit reporting bureaus.

Instructions

1

Visit the Opt Out Prescreen website (see Resources). On the homepage, you will find links to information detailing the benefits of receiving pre-approved credit card offers and to learn more details about the Opt Out program. To begin registering for the Opt Out Program, click the "Click Here to Opt-In or Opt-Out" button found at the bottom of the homepage.

2

Elect an opt out option. There are two opt-out options. The first opts you out of receiving credit offers for a period of 5 years. After 5 years, you will automatically "opt-in" and will continue receiving credit offers and the resulting credit inquiries on your credit report. The second option is to permanently opt out. This will stop all future credit inquiries, except those from companies with which you currently do business and nonprofit organizations, such as alumni organizations. After you select an opt-out option, click the "Submit" button.

3

Enter your information. The next page is a form that requires you to input your personal information, including your name, Social Security number, date of birth, mailing address and phone number. Although you do not have to input your Social Security number to opt out, doing so will help ensure that your request is processed quickly and accurately. Once you have entered your personal information, click the "Confirm" button at the bottom of the webpage.

4

Print out the confirmation page. If you selected the 5-year opt-out option, your request is complete. If you selected the permanent opt-out option, you will also automatically be enrolled in the 5-year opt-out program, but you must take another step to permanently opt out.

5

Mail the confirmation form to permanently opt out. If you want to permanently stop credit inquiries and you chose to permanently opt out, you must print, sign, date and return by mail the confirmation page that loads after you submit your personal information. Failing to sign and mail this to the Opt Out Program will enroll you only in the 5-year program, subjecting your credit report to credit inquiries after 5 years have elapsed.

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What Are the Three Free Credit Reports Available?

Equifax, Experian and TransUnion are the three national credit reporting agencies that prepare consumer credit reports in the United States. Under federal law, you are entitled to a free annual credit report from each of these agencies. However, the reports you receive just contain your credit history and do not include your actual credit scores

Credit Report

Credit reporting agencies gather information on consumers from public records as well as collecting information from finance companies and banks. The reporting agencies keep track of your active credit accounts and maintain records that show your account balances as well as your payment history. Details of bankruptcies, foreclosures and other delinquent debts are also listed on your credit report. The reporting agencies use your name, Social Security number and date of birth to match newly gathered data to your report.

Fair Credit Reporting Act

The Fair Credit Reporting Act provides consumers in the United States with the opportunity to ensure that their credit reports contain accurate information. Negative credit events have a damaging effect on your credit score and can cause lenders to deny you credit. You should notify credit bureaus of any errors in your report; and if necessary, provide the bureau with supporting documentation. Credit bureaus are required to make necessary corrections to your report although this process can take upwards of 45 days.

Differences

Creditors are not required to file reports with the credit bureaus and it actually costs creditors a fee to submit a report. To save money, some creditors only submit files to one credit bureau. As a result, your three credit reports may contain entirely different information. Each credit bureau also has its own system for determining your credit score although all three firms use a system where high scores reflect good credit and low scores are bad. You can pay a fee to obtain you credit score from each of the credit bureaus when you request your annual report.

Other Considerations

Your credit report changes on a monthly basis as your creditors provide the credit bureaus with new information. You can pay for credit monitoring services that provide you with updated credit information on a monthly basis. Additionally, if a creditor denies your application for credit on the basis of information contained on your credit report, then you are generally entitled to contact the bureau that provided the report within 60 days and request a free copy of it. You can get this report in addition to the free annual report. You can then submit a request to make a correction if you find that inaccurate information on the report caused your loan to be declined.

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Does Your Credit Score Affect the Interest Rate of an FHA Loan?

Buying a new home is exciting, but it is important for a prospective buyer to know how his financial situation might affect the terms of his loan. If a borrower applies for a Federal Housing Administration loan, he should understand how his credit score might affect the interest rate offered by the lender.

What Is an FHA Loan?

If a borrower is unable to qualify for a standard mortgage loan, he can apply for an FHA loan instead. With an FHA loan, the borrower must secure mortgage insurance, which protects the lender in case of default and improves the borrower's chances of approval. An FHA loan commonly has less stringent standards for approval compared to a standard loan, though the applicant must still meet basic qualifications in terms of debt-to-income ratios and credit history. Most FHA loans have a fixed interest rate, but in some rare cases, the lender may offer adjustable rate loans.

Credit Score Effect

The credit score of the applicant does have an effect on the interest rate for an FHA loan. An applicant with a score at or above the average score of 690 for an FHA loan (as of 2010) commonly gets the best rates while lower scores of 600 (minimum as of 2010) get offers for higher interest rates. The rates fluctuate and vary depending on the program packages offered by each lender.

Other Factors

The applicant's credit score also affects the down payment required for the FHA loan. A low-end score usually equals a higher down payment. A lower score presents a higher risk for the lending institution, so the prospective buyer must invest more into the house upfront in order to get the mortgage loan. On the other hand, an applicant with a higher score can pay a down payment closer to the FHA minimum (about 3.5 percent as of 2010).

Improving Credit Rating

Once the borrower initiates the process of getting an FHA loan, it isn't likely he'll be able to improve his score at that point to get a better interest rate. For that reason, it is important for a prospective borrower to take steps to raise his score as much as possible months before contacting an FHA approved lender. Resolving unpaid debts, reducing running debt balances, catching up with late payments and resolving errors on a credit report are a few ways to improve a credit rating.

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How to Lock a Credit History

Consumers who have been victims of identity theft often request a security freeze or lock on their credit file. A credit report lock prevents anyone from viewing your credit history. This includes any potential lenders as well as yourself. When you request a credit-reporting agency to freeze your credit file, the only way your credit report can be viewed is if you contact the credit-reporting agency, in writing, and authorize the lender to have a copy of your credit file.

Instructions

1




Call the credit reporting agency

Call the credit agency with which you will place the credit file lock. Advise the telephone agent you are calling to lock your credit file. Give the reasons for the credit lock.

2




Answer all questions the agent asks you

Confirm your identity with the telephone agent. You will be asked multiple questions to include your name, birth date, address, Social Security number. You may be requested to fax over additional proof such as a copy of your I.D. or a utility bill showing your name and address. Additionally, you may be asked questions regarding your credit accounts. These may be questions regarding when an account was opened or the monthly payment.

3




Write down all information on how to unlock the file in the future.

Write down the security pin the telephone agent provides you. This pin will be used anytime you wish to unlock your credit file. Ask the agent to give you all details on how to unlock your credit file in the future. Ask the agent if there will be a charge to unlock the credit file in the future. According to Transunion, Equifax and Experian, there may be charges between $3 to $10 for each lock and unlock and this fee will be determined by the reason for your credit freeze. Victims of identity theft are not usually charged but the phone agent will determine any fees on a case by case basis.

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How to Improve Your Credit Score After a Chapter 7

Once you file for bankruptcy, the credit bureaus note your bankruptcy case on your credit report, which damages your credit score. According to The Fair Credit Reporting Act, a Chapter 7 bankruptcy will continue to appear within your credit file for up to 10 years.

Although you cannot have a legitimate bankruptcy petition removed from your credit record before the legal reporting period expires, you can improve your credit after the court discharges your Chapter 7 bankruptcy.

Instructions

1

Make timely payments on any debts you chose to reaffirm during your bankruptcy. Examples of reaffirmed debts are secured assets, such as a home or vehicle. Your payment history to your creditors accounts for 35 percent of your credit score, according to the U.S. Department of Commerce's Minority Business Development Agency. Because this is the most significant single factor influencing your score, ontime payments are vital to rebuilding your credit after Chapter 7.

2

Apply for a secured credit card. Secured credit cards often require a cash deposit to pull from in case you fail to make payments. The benefit is that your damaged credit won't influence your approval.

3

Charge no more than 10 percent to 30 percent of your spending limit to your new secured credit card. Carrying a higher balance affects your debt-utilization ratio, which is the amount of debt you carry compared to your credit limit. A high balance hurts your score.

4

Make all of your credit card payments on time. Like your reaffirmed debts, your payments to your new credit card company contribute to improving your credit score as long as they arrive on time.

5

Purchase your credit score after making timely payments to your creditors for six months. You can purchase your FICO scores directly from the Fair Isaac Corp. (see Resources section).

6

Compare unsecured credit cards that you are interested in. Unsecured credit cards look better to lenders on a credit report than secured credit cards do, and if your credit score has improved, you might be eligible for these cards in as little as six months. Unsecured credit cards do not require a cash deposit.

7

Call various unsecured credit card providers and inquire about their eligibility requirements. If your credit score is high enough to qualify, apply for an unsecured credit card.

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Help for Clearing a Credit Report

Creditworthiness is crucial to obtaining home and auto loans, as well as receiving decent rates on insurance. It is important to have a decent score and to do this, some modifications may need to take place. If your credit report is spotty, there are a few things you can do to improve it.

Examine Credit Report

Get a copy of your report from all three major credit bureaus: Experian, TransUnion, and Equifax. Look carefully at all three reports to determine where your score needs to be improved. If your debt-to-income ratio is too high, you need to attempt to lower it. If you owe a significant debt and your line of credit is almost maxed out, this will lower your score. Pay down these debts as soon as possible to see a quick increase in your score.

Be sure that all credit accounts listed are yours. Sometimes mistakes happen and you should dispute them immediately if they occur. If erroneous information is sent to a bureau or it is entered under an incorrect social security number, you may suffer the consequences. Contact the credit bureau immediately to file a dispute. You will have to send them a detailed letter explaining what the error is and why it should not be on your report. Also, contact the source of the error. Find out why they reported you to the bureaus if you feel that the reason is false.

Debt Consolidation

There are many companies that can help you manage your debt by combining all of your debts into one low monthly payment. This works out well for those with a lot of debts that are accruing late charges, interest charges, and other penalties due to an inability to pay. A legitimate credit consolidation agency will work on your behalf with your creditors to help reduce your payments to something you can afford. Many of these agencies are partially funded by creditors, so they are usually willing to work with debtors who use this type of assistance. As long as you are making an effort to pay off your debts, most creditors will make note of this on your report and will not continue listing you as delinquent.

Remember, there are plenty of agencies that claim to help you with your credit score but they are not legitimate. Do your research online before choosing an agency because this can save you a lot of money and frustration. They should be registered and in good standing with the Better Business Bureau. If they are not, do not use them. Read as many testimonials as you can when researching a debt consolidation agency. If others view an agency positively, it may be a good operation.

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