Improving credit scores

How do you maintain a high credit score and quickly increase an existing score?

Improving a credit score takes time, but there are some things you can do to change your score quickly. Here are some ways to achieve the best possible score in both the long and short-run.

A credit score is primarily designed to predict the likelihood of a consumer receiving a 90-day late in the next twenty-four months. Research conducted by Fair, Isaac & Co. (FICO), identified indicators determining the probability a consumer will receive a 90-day late in the next twenty-four months.

Tip: Some consumers think a mortgage late is "worse" than a credit card late. The FICO model doesn't distinguish between the two. A late payment is a late payment—-period. The consumer should make all payments on time. Late payments in the previous six-months reduce a credit score the most, followed by late payments in the previous seven to twenty-four months. Late payments over twenty-four months are the least damaging.

Outstanding Debt-30%: Outstanding debt refers to revolving credit, specifically credit cards. A home equity line is revolving credit, but an equity line is treated more favorably compared to a credit card.

Tip: The key to a good credit score is the ratio of outstanding debt-to-credit limit per card and overall. For example, a credit card with a $4,500 balance and a $5,000 limit is worse than a credit card with a $10,000 balance and a $15,000 limit. If you have several credit cards, it's better to spread debt among them to achieve an overall, low debt-to-credit limit ratio.

Tip: A credit reporting company may not know the current limit on a credit card. They sometimes report a previous, highest outstanding balance as the credit limit. This could lower a credit score in some cases. Be sure they know what the credit card limits are.

Tip: A credit card balance of zero will not contribute to a score. If a consumer has a good payment history for a card, make sure a balance for that card appears on the credit report.

Length of Credit History-15%: The length of time a card is open contributes to a score. Several credit cards open for a short time will lower a score.

Tip: Don't open several new credit card accounts in order to spread debt among them (in order to lower a debt/credit limit ratio). This will lower a credit score. Types of Credit-10%: A credit card issued by a finance company if les favorable compared to a card issued by a major bank.

Tip: Some large, "wholesale-to-the-public," warehouse-style store issue their own credit cards. These cards are sometimes backed by finance companies. These cards can lower a score.

Inquiries (Applications for New Credit)-10%: These are credit inquiries. Today, the most number of inquiries can be effectively "ignored" under certain circumstance. The inquiries one makes into one's own credit don't count.

If a consumer is shopping for a mortgage and several inquiries have been made in the previous thirty days, only one mortgage inquiry is considered in the score. In the eleven months prior the previous thirty days, only inquiries occurring more than two weeks apart are considered.

For example: A consumer has five mortgage inquiries in the past thirty days. Only one inquiry is considered in the score. In the period covering the eleven months prior to the previous thirty days, the consumer has a mortgage inquiry every fourteen days. Only one inquiry is counted in the eleven month period. On the other hand, if the consumer has a mortgage inquiry every fifteen days in the previous eleven months, all twenty-two inquiries are counted in the score.

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