Inside the Mortgage Machine – Fico Score Tips
There is a lot of parameters that make up your Fico, or credit score. When trying to look at your situation and what possible changes may help you improve your Fico prior to a financed transaction its always a good idea to get a reputable credit repair company involved if you need serious help. These companies can be expensive, and its best to get a referral from a good mortgage broker as to who’s actually going to repair your credit instead of just rip you off.
I’d like to take a minute and share with you some Fico Tips that were faxed to me as a result of working with Factual Data while helping a client prepare for her first home loan. Many of these tips are available at myfico.com.
The Date of Last Activity – is the most important date on your credit report. Derogatory accounts will be reported on your history for 7 years from that date (profit & loss, collection, etc.). Accounts in good standing will report for 10 years beyond the date of last activity.
The Date of Last Activity is a factor that determines how much consideration the account has on your score. The more recent the DOLA, the more impact that account has on your score.
The Difference Between Paying off and Deleting an Account – Paying off an old collection will lower your Fico Score. Negotiating a Letter of Deletion in exchange for payment in full can raise your score. The difference has to do with the DOLA. If you pay it off, all of a sudden that $200.00 collection from 2001 becomes a $200.00 collection from NOW (remember, the more recent the account, the more it affects you). If you can negotiate a letter of deletion, and can have it forwarded to the bureaus that have been receiving information that you are derogatory, IT NO LONGER EXISTS! Please note these accounts must be deleted at the bureau level.
Revolving vs. Installment Loans – Paying down your revolving accounts can raise your score. We mentioned this in a previous blog, but since it’s important, I’ll repeat it. Paying down your credit card balances to 30% of their limit is awesome. Paying them down to 50% is still pretty good.
Paying down your installment loan, on the other hand (your car note, or road bike balance for example will have little or NO increase to your score). This one in particular get me upset when lenders who don’t know what their doing tell people they need to raise their Fico, so go pay down your loan that won’t matter.
Inquiries on Your Credit – These will hurt your score. It’s not the end of the world, if you have decent credit. The lower your score, the more each inquiry hurts. If you have a 400 Fico and run out to every mortgage guy in town hoping one of them will somehow pull a 700 for you, STOP. You’re going to be hit the hardest for trying, up to 50 points. If you have good credit, having a couple pulls will only ding you about 2 points. These reporting dings do understand that you should have more than one option when shopping for financing though, so within a 30 day period, only the first one will ding you, there after until the 30th day the other ones are bundled w/ the first and won’t hurt you. This applies for both home and auto financing inquiries.
Opening New Accounts – Does bring you down a little, once you have it open, closing it will not bring you back up to where you were.
Closing Accounts – Closing accounts can hurt your score, especially if the account you close is an older one. Mentioned in a previous post, credit history is part of what builds your credit; going in and deleting your history is not a good move. If you have a credit card from two years ago and don’t want it anymore, pay it down to zero and LEAVE IT OPEN! I’d even recommend using it once a month and paying it back off so it’s considered current, which will help you.
Bankruptcies – Will stay on your report for 10 years. The accounts being discharged by your bankruptcy can only show for 7 years from the Date of Last Activity and/or the discharge date.
Myself as well as many other lenders have the ability to not only pull your credit as you begin looking to buy a home, but we also have advanced tools we can use to determine a projection of what improvements may be made by paying down, closing, or deleting different accounts on your report. Please consult with a lender or credit repair person before you go changing things. Your good credit score is one of the best assets you can have in today’s world.