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New Year Resolution
Now that the Holidays are over and we are beginning a new year, everyone should focus on improving credit and credit scores as part of their New Year’s Resolution. In order to do this, you must understand what is involved when FICO calculates your credit scores. To review, there are five components to be concerned with:
1. PAYMENT HISTORY
• Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
• Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
• Severity of delinquency (how long past due)
• Amount past due on delinquent accounts or collection items
• Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
• Number of past due items on file
• Number of accounts paid as agreed
2. AMOUNTS OWED
• Amount owing on accounts
• Amount owing on specific types of accounts
• Lack of a specific type of balance, in some cases
• Number of accounts with balances
• Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
• Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)
3. LENGTH OF CREDIT HISTORY
• Time since accounts opened
• Time since accounts opened, by specific type of account
• Time since account activity
4. NEW CREDIT
• Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
• Number of recent credit inquiries
• Time since recent account opening(s), by type of account
• Time since credit inquiry(s)
• Re-establishment of positive credit history following past payment problems
5. TYPES OF CREDIT USED
• Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)
By learning how the scoring model works, you will begin to develop an understanding of how your credit scores will react when making financial decisions. And remember to refer the people you know who are struggling with low credit scores to me. I can work with them and help them to get back on track for 2010!
Kevin D. Weier
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