How to Improve Your Credit Score

Your vehicle is more then a few years old and has some mileage on it, you go into your local car dealer and after looking around and test driving a few models you find your dream car. You sit down and fill out all the paper work and BAM they are unable to finance you at this time. They politely tell you they will keep trying and will call if they come up with anyway to get you financed.

You leave, your dreams smashed and you heard whirling. You start receiving letters from different banks and financial institutions the dealership had tried to get you financed through and they all say the same thing. "We're sorry we are not able to finance you at this time based on your FICO score, the number of late or delinquent payments, etc....

What happened? What is a FICO score? What do you do now?

A FICO score is a credit method of determining the likelihood someone will pay his or her bills. The method was developed by Fair Isaac & Co. in the late 1950s and has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrowers credit history into a single number. Fair Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this acceptable.

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Score-model developers find predictive factors, after studying thousands of people and how they used credit, in the data that have proven to indicate future credit performance. Credit-bureau models are developed from information in consumer credit-bureau reports.

Late payments, the amount of credit established, the amount of credit used versus the amount of credit available (debt to credit ratio), the length of time at a residence, employment history and negative credit information such as bankruptcies, charge-offs and collections are used to determine a FICO score.

The lowest possible score is 200 and the highest is 900. A score of about 620 is needed to get decent credit. A score of 680 to 700 is considered excellent, less than 620 is considered sub-prime. There are three major credit bureaus, Equifax, Trans Union and Experian.

Some things that bring a credit score down are late payments, missed payments, bankruptcies, having too much credit, moving often, changing jobs often and credit inquiries. Each time you apply for credit, regardless if you get the credit or are denied, it can lower your score down by as much as five points.

The first thing to do when trying to repair your credit score - and something you should do on a regular basis when you have good credit - is to get a copy of your credit report and make sure it's correct and all belongs to you.

"Ninety percent of credit reports have mistakes," Family Financial education Foundation business development manager Carrie Wood said. "If you find something wrong, write to the credit bureau and tell them what is wrong and why."

By notifying a credit bureau of a mistake, the item shows "in dispute" on your credit report until the issue is resolved.
"When an item is in dispute, it cannot be counted against you by a potential lender," Wood said.

Disputing an item takes 60 to 90 days to be resolved. A creditor has 30 days to respond and prove the charge is valid. If they do not respond the item has to be removed. There is a seven-year stature of limitations for an account with no activity. If you find an account on your report over seven years it has to come off.

When trying to repair a credit score, pay your bills on time, do not apply for credit frequently, reduce your credit-card balances and if you have limited credit obtain additional credit. Not having sufficient credit can negatively impact your score.

Repairing credit or increasing your score takes time. Accepting a settlement offered by a creditor will show as a negative on your credit report and you could be taxable by the Internal Revenue Service.

"You can't repair a credit score in a matter of days … it might take six months to a year, or more," Wood said. "The problem didn't happen overnight, it won't be solved overnight. It takes at last 30 days to get anything off a credit report, even when it is not correct."

Harassment by collectors is the number one complaint filed by consumers. Even consumers who have not paid or are not paying their bills have rights. If a collector is calling at work, the consumer can tell the collector once not to call them at work and they legally have to stop. At home, a collector cannot call before 8 a.m. and after 9 p.m. (the consumer's time).

When a collector calls the consumer should get the name of the person calling and the company they are with and representing. If the collector is in violation, such as calling a workplace after being told not to or calling a home before 8 a.m. or 9 p.m., the consumer should tell the collector they will be filling a complaint against them.

A collector cannot keep calling once they have spoken to someone. If they call and leave a message on an answering machine or with someone, they can continue to. However they cannot disclose why they are calling (or whom they are with if it will allude to the reason for the call).

With the exception of vehicle repossession, a collector cannot come into the home of a consumer without permission and take property unless a member of law enforcement accompanies them.

When being harassed by a collector, it's a good idea to have a tape recorder handy. The laws are governed by the state the person recording is in. In Wyoming, only one party has to know about the recording and give consent.

Never make a payment over the phone with a company that is or has harassed you, especially a check over the phone. Doing so gives the collectors access to your account and while you can recover monies taken out of your account without your permission, it may take a while and cause other items not to clear, making your credit worse.

If you have good credit some ways to help keep it are to minimize credit inquiries, pay bills early, pay off revolving cards monthly, never close a credit account, don't switch credit cards to get the best rate, keep the oldest credit account on your credit report, don't have more than two major bank cards and never use more than 50 percent of your revolving credit limit.
Another reason to be aware of what is on your credit report when you have good credit is to make sure no one has stolen your identity and is using your credit. Preventing identity theft is much easier and cost a lot less then recovering your identity and repairing the damage.

Purchasing identity theft protection can be a good investment to protect your credit. A good identity theft; compiles your personal credit report from different credit bureaus, monitors your credit daily, alerts you to account openings or inquiries into your credit files, can reimburse you for the cost, or a percentage of the cost, incurred in recovering your identity and the cost to repair your credit.

Credit scores are used for more and more things these days. You no longer need a good or decent credit score just to purchase a home or vehicle. Many renters check credit records on potential renters, utility companies check credit records to determine if a deposit, or how much of one, will be required. Many insurance companies now check credit reports to determine rates and if the score is too low, some companies will deny coverage. So with more and more of our lives being determined or affected by credit scores having good credit and always knowing what your report looks like is a wise decision.