FICO scores are calculated from a lot of different credit data on your credit report. This data can be grouped into five categories as described below:
1. Payment history - 35 percent of the total credit score is based on a borrower's payment history.
2. Amounts owed - 30 percent of the total credit score is based on a borrower's total outstanding debt.
3. Length of credit history - 15 percent of the total credit score is based on the length of time each account has been open and the length of time since the account's most recent action.
4. New credit & Types of credit used - New credit and credit mix: Each comprise 10 percent of the total credit score. Borrowers, even those new to credit, should avoid opening too many credit lines at the same time.
If you're wanting to see some improvements in your scores, here are some tips:
1. Be strategic. If it's already on your credit report, the damage is mostly done as far as your score is concerned. Be strategic, therefore, about the order and timing of what you choose to pay as you're paying your debts. Paying some items is more valuable than paying others. For example, if you've got a debt that could still be sold to a collection agency, prioritize it. It will look "new" when it's sold and will hurt your score more.
2. Budget. Keep only bills that you can commit to paying on time all the time. No more late pays! If you have to give up some things for a while, so be it. Use new credit cautiously and responsibly according to the same rules. Only purchase what you can pay on time EVERY time. A pattern of 30, 60 and 90 day late payments will hurt you even if you eventually catch it all up.
3. Bargain and dispute. Take advantage of your Creditors' willingness (on occasion) to settle your debt for a lesser amount. Many will. You might be surprised at how even amounts owed on big ticket items can be settled for much less than you think. We often advise people to offer 30% to 40% on older charges and these offers are often accepted! You also want to dispute the inaccuracies and items on your report that should not be there at all. Most people have A LOT of these. I've found we can improve a person's score just by making sure it reflects what actually happened and when.
This last step is where I help. We've developed a system and built a team to help people handle the dispute process efficiently and powerfully! Our Clients get results far beyond their expectations and we work on all three bureaus!
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