How to Improve Your FICO Score

A company called the Fair Isaac Corporation created the first credit score. It was made available to lenders in the very late 80s and soon thereafter began to pick up momentum and popularity in the lending world. The FICO score became the gold standard in the mortgage lending world when Fannie Mae and Freddie Mac endorsed its use for evaluating mortgage loan applications in the mid 90s.

For years the FICO score was a mystery to consumers and was only known by the lending industry. Credit scores have only recently been made available to the public in the last few years. In 2001, California passed a law that required credit scores to be made available to California residents.

This pretty much opened the floodgates for the rest of us.

It also turned into a cash cow for the bureaus. However, for two of the three, instead of selling the actual FICO score, where they had to pay royalties to the Fair Isaac Corporation - they created their own scores to sell to consumers.

That's where the confusion started.

Now that the bureaus all sell scores targeted at the consumer market, many unknowing consumers assume that these scores are the same scores a lender would see. Unfortunately, this is just not the case and it often causes a lot of confusion for those that are looking to refinance a mortgage or trying to qualify for a new car loan.

Take Steven and Veronica Blanco for example. To get a better understanding of where they stood credit wise, they went online and paid for all six of his and his wife's credit scores - one for each of them from each of the three major credit bureaus.

Between the two of them, their scores ranged from a high of 732 to a low of 705. Knowing that mortgage lenders typically go with the middle scores, Steven assumed that they would be fine in qualifying for a new home loan at a decent rate.

But when the couple applied for a mortgage loan through their credit union, they were shocked to find out that the credit scores their lender pulled were significantly lower, ranging from 645 to 672. After talking with their lender at length they learned that even though they had purchased their scores from one of the three major credit bureaus, the scores they purchased were not the same scores that lenders use.

So what score is the right score and where can I find it online?

Here's the deal...the industry standard for credit scores is still the FICO score. The FICO score is the score that most lenders use when determining your eligibility and terms for a loan. While the FICO score is not the only credit score that lenders use, it is the most widely used with more than 90% of lenders using it to make their lending decisions.

The easiest and most convenient site to order your FICO credit scores is through Fair Isaac's consumer website: www.myFICO.com.

This is the only site where consumers can order all three of their FICO credit scores from all three credit bureaus. You can also order scores from the credit bureau websites directly but you should be aware that you're not necessarily going to get a score that lenders use.

While these scores are pretty much worthless in the lending environment, they are a constant source of revenue for the bureaus at the consumer level. Let's take a look at what each of the three major credit bureaus offer to consumers:

Equifax
Equifax is the only bureau website that you can order your FICO score from directly - without having to search for an obscure alternate web address. The score is marketed as Score Power.

When you visit their website you'll notice that they explain that the score that you're purchasing is in fact a FICO score. The problem is that you're only able to get the Equifax FICO score from this site and we all have three FICO scores - one from each of the three major credit reporting agencies.

Experian
Experian markets and sells the PLUS Score on their website. They also have a half dozen other websites marketed under different brands that also sell their Plus Score. Be very careful when watching commercials about free credit reports; that's one of their marketing tactics.

If you've purchased a score from Experian or one of their consumer sites, you didn't get your FICO score.

TransUnion
TransUnion sells the TransRisk score under their 'TrueCredit' brand. Their TransRisk score is also available for sale to lenders but it just isn't commonly used.

TransUnion does sell the legitimate FICO credit score to consumers, but it's only marketed at their TransUnion Consumer Services website at www.transunioncs.com.

As you can see, this site is almost impossible to find unless you know the exact website address. Just try Googling the consumer services division and you'll see what I mean.

While these are only the websites of the major players, there are tons of other sites out there that offer credit reports and scores. The easiest way to be sure that you're ordering a FICO score is to read the fine print. If it's a FICO score, it'll say so.

Here is overview of the categories that determine your credit score and some guidelines for raising your credit score higher.

Payment History (35 percent)

Paying your current bills on time is the single most important factor in obtaining a high credit score. This category includes credit cards, retail accounts, installment loans such as those for a car, loans from finance companies, and mortgages. Also included in this category are matters of public record such as bankruptcies, liens, wage garnishments, and collection accounts. The key to a higher score: Pay your bills on time!

How Much Debt You Carry (30 percent)

This category considers the amount of debt you owe on your various credit accounts. If you've "maxed out" your available credit, this could indicate that you are overextended financially and won't be able to make your payments on time or repay your debts completely. This category also examines how many of your accounts carry balances and how much money you've already repaid. Closing accounts with a zero balance does not generally improve your score in this area. The key to a higher score: Keep your balances low.

Established Credit (15 percent)

The longer you've had credit accounts the higher you will score in this area. The age of your oldest account and the average age of all your accounts are used in determining your score. Old accounts that have gone unused are also considered. The key to a higher score: Establish good credit and keep accounts active.

Applications for New Credit (10 percent)

Opening multiple credit accounts within a short period of time represents a greater risk of becoming overextended. Each time you apply for credit an inquiry is made into your credit history and these inquiries show up in your credit report. A high number of credit inquiries will lower your score.

Some inquiries are not considered in your score like requests by you for your credit report, inquiries from companies for pre-approved offers or companies that already do business with you, and inquiries from potential employers. Some requests are treated as a single inquiry especially when you are shopping for the best loan rate. The key to a higher score: Only apply for and open new credit accounts when you need them.

Your Credit Mix (10 percent)

This category examines the types of credit accounts you have and how many of each. Can a person have too many accounts? Yes and no. It really depends on whether you have an established credit history or no credit history at all. The key to a higher score: Open credit accounts only if you intend to use them.

Your credit score will change for better or worse depending on how well you understand and use these five keys to your advantage in planning your financial future.

ATTORNEY's ADVICE - NO CHARGE  

If you dislike attorneys..... You will love them for these tips.

Read this and make a copy for your files in case you need to refer to it someday. Maybe we should all take some of his advice! A corporate attorney sent the following out to the employees in his company.

1. Do not sign the back of your credit cards . Instead, put 'PHOTO ID REQUIRED.'

2. When you are writing checks to pay on your credit card accounts, DO NOT put the complete account number on the 'For' line. Instead, just put the last four numbers. The credit card company knows the rest of the number, and anyone who might be handling your check as it passes through all the check processing channels won't have access to it.

3. Put your work phone # on your checks instead of your home phone. If you have a PO Box use that instead of your home address. If you do not have a PO Box, use your work address. Never have your SS# printed on your checks. (DUH!) You can add it if it is necessary. But if you have it printed, anyone can get it.

4. Place the contents of your wallet on a photocopy machine Do both sides of each license, credit card, etc. You will know what you had in your wallet and all of the account numbers and phone numbers to call and cancel. Keep the photocopy in a safe place.
I also carry a photocopy of my passport when I travel either here or abroad. We've all heard horror stories about fraud that's committed on us in stealing a Name, address, Social Security number, credit cards.

Unfortunately, I, an attorney, have first hand knowledge because my wallet was stolen last month. Within a week, the thieve(S) ordered an expensive monthly cell phone package, applied for a VISA credit card, had a credit line approved to buy a Gateway computer, received a PIN number from DMV to change my driving record information online, and more.

But here's some critical information to limit the damage in case this happens to you or someone you know:

5. We have been told we should cancel our credit cards immediately. But the key is having the toll free numbers and your card numbers handy so you know whom to call. Keep those where you can find them.

6. File a police report immediately in the jurisdiction where your credit cards, etc., was sto len. This proves to credit providers you were diligent, and this is a first step toward an investigation (if there ever is one).



7. Call the 3 national credit reporting organizations immediately to place a fraud alert on your name and also call the Social Security fraud line number. I had never heard of doing that until advised by a bank that called to tell me an application for credit was made over the internet in my name.  The alert means any company that checks your credit knows your information was stolen, and they have to contact you by phone to authorize new credit.



1.) Equifax: 1-800-525-6285

2.) Experian (formerly TRW): 1-888-397-3742

3.) Trans Union : 1-800-680 7289

4.) Social Security Administration (fraud line):
1-800-269-0271