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How lenders
evaluate your credit... Page 2
continued
Now that we know a little
about what goes into the formula, let's look at some of the things that can cause a low
score. In no particular order they are: delinquency on accounts, total owed on accounts
too high, and too many or too few bank revolving accounts. Other negatives are having too
many accounts with balances and consumer finance accounts. These are only a few
possibilities. Remember, the calculation includes up to 33 factors.
The next question is an obvious one. How do I find out my score? And you're not going to
like the answer. It's very difficult to get your FICO score. None of the companies who
calculate or use the score are under a legal obligation to tell you what it is. If you're
denied credit because of the score, the lender must tell you which questions reduced your
score, but it isn't required to tell you the score. The lender might choose to do so, but
you can't force it to.
So how can you improve your score? There are five ways tomake sure you have the best FICO
score possible. First, pay your bills consistently and on time. That demonstrates that you
know how to use credit wisely. Check your credit report for errors and have them removed.
There are three main credit-reporting agencies. By law they may charge you up to
$8 for your report unless you have been denied credit due to their report within the last
60 days.
Next, keep your debt to reasonable levels. The models want you to have balances of less
than 75% of your available credit limits. Please remember that we're not encouraging you
to increase your balance to that level. The formula considers a balance above 75% as a
warning sign of impending trouble. Carrying a zero monthly balance is the wisest use of
your money.
You'll also improve your score by having a reasonable amount of unused credit. If you
carry a dozen cards that each have $3,000 in available credit, the model assumes that you
could go on a buying spree. You know that you won't do that, but the model doesn't. If you
find that you can't bear to close some of the accounts, at least call and have the credit
limits reduced.
Finally, avoid too many inquiries for new credit. Sometimes these computer models have a
hard time telling the difference between someone shopping for a new car and a borrower
who's desperately trying to find money to avoid bankruptcy.
Gary Foreman edits The
Dollar Stretcher website. You'll find the web's largest collection of free money
saving articles. There's even a free weekly email newsletter. Visit Today!
Credit and Debt Calculators:
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