Repair Your Credit

How the credit agencies and FICO see you

The overall objective of your effort to repair or rebuild your credit is to increase your FICO score so you can qualify for more favorable interest rates on future credit cards and loans, and possibly on existing cards as well.  To do this you have to understand what the secret sauce is that drives FICO (also known as NextGen).

FICO is a software that takes information from your credit report and processes it to predict how you handle financial responsibility.  The higher the score the better.  Scores typically over 700 can get advertised interest rates.  Under 700 get sub-prime rates that could be much higher.

So other than paying down debt and paying on time, what else can you do to increase your score.  The answer is, there is no easy answer.  The Fair Iasaac organization, the creators of the software, will not give out the exact algorithms but they do give out generalities.  Here are a few that you can use:

 FICO likes to see a mix of types of debt.  That is to say if all you have are credit cards you will score lower than if you also had a car loan, student loan or even a retail card. So if you don't have a good mix, take advantage of the next 10% off offer for getting a store card when you shop at most major retailers.

They don't like to see a lot of credit obtained in a relatively short period of time.  Think twice about the balance transfer offers unless it can demonstrate a real savings.

They do like credit lines that are mature (over 2 years old) as it demonstrates your ability to manage the credit.  If your oldest card is the one you are trying to pay off because of a high interest rate, don't.  Leave a small balance so the "life history" of your credit will go back to when you first opened it up.

Ideally they would like to see a total balance of 15% or less of available credit.  FICO announced recently that they have made changes to more better reflect the crisis we are in now but no details were given.

The credit score starts with data from your credit report so it is important to ensure that the information is accurate.  An annual review is an absolute must.  If you are planning to apply for a car loan or mortgage, get a copy of your credit report at least four months in advance to make sure it is accurate.

You can go here to get your free credit reports.

 For a complete up to date do-it-yourself credit plan, and hours of video Click Here!