Credit Restoration - Improving Your Credit Score:
Improving your credit score isn’t a race; it’s a marathon. It takes time and endurance. The best advice is to manage credit responsibly over time. See how much money you can save by just following these tips and raising your score.
- Payment History Tips
- Pay your bills on time. Delinquent payments and collections can have a major negative impact on your score.
- If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your score.
- Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.
- If you are having trouble making ends meet, contact your creditors. This won't improve your credit score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.
- Amounts Owed Tips
- Keep balances low on credit cards and other “revolving credit”. High outstanding debt can affect a score. Score explanation
- Pay off debt rather than moving it around.
- The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
- Don't close unused credit cards as a short-term strategy to raise your score.
- Don't open a number of new credit cards that you don't need just to increase your available credit. This approach could backfire and actually lower score.
Length of Credit History Tips
If you have been managing credit for a short time, don't open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don't have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user. |
Credit Score Explanation:
FICO Scores are calculated by various credit data in your credit report. This data can be divided into five categories as outlined below. The different percentages in the chart reflect how important each of the categories is in determining your score.
These percentages are based on the importance of the five categories for the general population. For particular groups - for example, people who have not been using credit long - the importance of these categories may differentiate.
(click on a slice of the pie to see a full explanation of each)
- 35% of the score
 Payment History - Do you have a good track record? Risk predictors here look at:
- Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
- Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
- Severity of delinquency (how long past due)
- Amount past due on delinquent accounts or collection items
- Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
- Number of past due items on file
- Number of accounts paid as agreed
- 30% of the score
 Amounts Owed - How much is too much credit? Risk predictors here look at:
- Amount owing on accounts
- Amount owing on specific types of accounts
- Lack of a specific type of balance, in some cases
- Number of accounts with balances
- Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
- Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)
- 15% of the score
 Length of Credit History - How established is your credit? Risk predictors here look at:
- Time since accounts opened
- Time since accounts opened, by specific type of account
- Time since account activity
- 10% of the score
 Types of Credit Used - Do you have a healthy mix? Risk predictors here look at:
- Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)
- 10% of the score
 New Credit - Are you taking on too much debt? Risk predictors here look at:
- Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
- Number of recent credit inquiries
- Time since recent account opening(s), by type of account
- Time since credit inquiry(s)
- Re-establishment of positive credit history following past payment problems
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Paying off your debt isn’t enough
 Paying off your debt is kind of like paying off a speeding ticket. Just because you pay it off doesn’t necessarily mean they have to remove it from your driving record. The same is true with your credit. The creditor or collection agency might show it as paid and zero balance but that doesn’t mean they have to remove it. They can report your payment history for up to seven years. In fact, paying off old debt could actually lower your credit score. The creditor or collection agency could update the date of last activity from the date the debt was first reported to the date that you pay the debt off.
35% of your credit score is based on how recent an account occurs. The more recent the delinquency the greater negative impact it has on your score Just paying off your debt would basically renew the date of last activity to today’s date and would now have a more recent blemish on your account. This will make your score go down.
- Please note that:
- A score takes into consideration all these categories of information, not just one or two. No one piece of information or factor alone will determine your score.
- The importance of any factor depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score.
Thus, it's impossible to say exactly how important any single factor is in determining your score - even the levels of importance shown here are for the general population, and will be different for different credit profiles. What's important is the mix of information, which varies from person to person, and for any one person over time.
- Scoring Models only look at information in your credit report.
- However, lenders look at many things when making a credit decision, including your income, how long you have worked at your present job and the kind of credit you are requesting.
Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your credit score.
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