The recommendations below are for the “Classic” Fair Isaac Scores. One very important change is that now the scoring software looks at whether a collection is PAID. While we are told by Fair Isaac and others that the sure way to a good credit score is paying your bills on time, THAT IS JUST NOT TRUE!
There have been many low credit scores without a single late payment in 4+ years or even no late payment at all. Here are my recommendations on improving FICO credit scores:
1.If you don’t have the money to pay ALL your bills, pay the mortgage first, then installment loans and last revolving debt.
You are not reported as late to the bureaus until you are 30 days past the due date (15 days for mortgage verifications.) If you have a short term cash flow problem, use your cash to pay several small REPORTED bills instead of one or two large ones. But always pay mortgages and installment loans first.
Pay the credit cards instead of utilities.
Utilities are usually not reported until they go into collections and they will often negotiate UNREPORTED payment plans.
DON’T pay everybody LESS than the minimum due, they’ll ALL report you late.
No points for an honest effort! If you have serious long term financial problems, don’t be afraid to file for bankruptcy. Your credit rating will be MUCH better after a bankruptcy with a few years of re-established credit with no late payments instead of having chronic late payments while desperately trying to keep up with the bills. This is a very serious issue. Unfortunately most attorneys advise you to jump into bankruptcy without a sound analysis regarding negotiation.
AVOID the CCCS (Consumer Credit Counseling Service.)
The, CCCS and the countless “non profit” debt counseling services spamming the net, papers, TV and radio are financed by the creditors. Their ONLY goal is to keep people from filing for bankruptcy. It is a fact that Consumer Credit Counseling Agencies are funded by credit reporting agencies and their clients. Talk to an experienced mortgage loan officer about a notation on your credit report regarding CCCS programs.
The banks look upon this as the last resort because the consumer could not or would not pay their bills. The CCCS routinely negotiates payments according to your cash flow. Rarely do they negotiate terms regarding entries. Their mission is to keep you functioning to pay the bills so that bankruptcy is forestalled. Hence the creditors continue to get money from those unfortunates that have no way to seek relief.
Often notations are attached to the accounts on your credit reports while in the program, and your credit rating is as bad or worse than after filing bankruptcy. We have also read of counseling services making payments to the creditors LATE.
2. BEFORE filing for bankruptcy, check for any accounts (department stores, gas cards) that you haven’t charged up. Do NOT include those accounts in the filing if you owe little or nothing. If you owe a little, pay them off before filing, that way they’re not a creditor and they won’t be notified.
After the filing USE those accounts occasionally, but don’t charge a lot, as that might trigger an account review credit report, possibly resulting in the account closure. Since some creditors like American Express constantly run your credit, this method isn’t 100%. Providian will also close the accounts, they apparently subscribe to a service that informs them of filings.
But I know that it worked many times with department store cards and I’ve seen credit cards survive the bankruptcy too. You can also look into reaffirming one or two credit cards. In a recent personal experience a client filed a Chapter 7 but withheld a Sears Charge Account. The account was up to date with no late payments. The card survived the bankruptcy and the client subsequently referred to the Sears Credit Card as a reference to obtain new credit. So it works !
There is nothing like a few open accounts with several years history and no lates to greatly help your scores and approval for credit cards.
3. If you don’t have several open accounts, get some (secured) credit cards ASAP.
It does NOT matter how low the limit is, the key is to get the accounts opened and to establish HISTORY ASAP. Most cards offer increases every 6 to 12 months. And of course you can increase your security deposit at any time. Two key factors to credit scoring are HISTORY and your BALANCE to LIMIT ratio. You can NEVER change the history.
However you CAN change the LIMIT at any time and it will NOT show on your report when your limit was changed. Credit scores are based on your CURRENT credit data. If you owe $400 with $500 total available credit, you are in deep doodoo. Up that limit to $2,000 and you’re looking great!
Citibank and now Capital One do NOT report your credit limit. The subsequent reason for decline: “High ratio of bank revolving account debt to available credit.”
Check Secured and Unsecured Credit Cards for links and search the Credit Forum for recommendations and the latest updates.
Do NOT apply for low interest platinum cards if you know you have low scores and/or bad or little or no existing credit. The inquiries will only lower your score, ultimately resulting in lower limits and higher deposit requirements.
4) Become an AUTHORIZED user for a good friend’s or relative’s account.
Credit Scoring will view the account as yours, read Authorized User Status for more details. But the authorized user status still requires the guarantor to make payment. There have been many cases of situations where someone will actually rent you their credit history by being an authorized user on their account. However, this, is being frowned on by major lenders and being closely looked at by the FTC. My personal opinion is that the lenders might allow only families to “piggy back” credit.
5) You should have AT LEAST 2 to 3 credit cards and 2 to 3 department store cards. I have read that Target cards are very easy to get.
A couple of gas cards would help too, especially if you have less than 4 credit/department store cards and IF they report on your credit. Apparently most don’t.
USE those accounts occasionally and pay them off in full if possible.
Stay away from finance company accounts such as AVCO, Household Finance, Beneficial, ITT, Transamerica, etc.
You lose points with Fair Isaac for having finance company accounts. However, it’s better to have a finance company account than NO accounts and unfortunately we often don’t know what we’ll get when we apply.
Don’t believe the car dealers who’ll tell you that their financing will help your credit. While it will do so YEARS later, initially your credit scores will be lowered. In my experience most used car financing for people with credit problems is extremely expensive AND they’ll sell you overpriced junk.
Credit Unions sometimes offer good deals on installment loans for consolidations or special purchases. The key to installment loans IMPROVING your credit is that current balance/original loan ratio.
So if you DO get an installment loan, borrow MORE than you need, then make a large payment right away.