Credit Tips: Tips to Raise Credit Scores

Posted On: March 1, 2005

Author: creditbuilder
Joined: 07 Feb 2005
Posts: 12
Posted: Wed Feb 16, 2005 7:16 pm
Post subject: tips to raise credit score,stats, the perfect credit profile

www.fool.com/seminars/ev/index.htm?sid=0029&lid=100&pid=0000

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Author: Polonius
Credit Expert (100+ Posts)
Joined: 19 Jan 2004
Posts: 498
Posted: Wed Feb 16, 2005 8:08 pm

That’s a link to a page introducing a Motley Fool seminar that’s no longer offered–and that cost $65 or so when it was offered….

Polonius
“Neither a borrower, nor a lender be; For loan oft loses both itself and friend”

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Author: NightStar
Board Monitor
Joined: 07 Nov 2003
Posts: 2616
Location: Illinois
Posted: Thu Feb 17, 2005 9:03 am

Sometimes it is hard linking to other sites links, they redirect a lot, I get in the habit myself of quoting and linking just on chance when that happens.

Best Regards,
Pammila Phillis
Board Monitor
U.S. Citizens for Fair Credit Card Terms, Inc.
http://www.cardratings.com
501-663-0314 PH
501-663-0033 FX

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Author: creditbuilder
Joined: 07 Feb 2005
Posts: 12
Posted: Thu Feb 17, 2005 3:53 pm

www.fool.com/seminars/ev/?sid=0029&lid=503&pid=0000

This link should work for most of it.

If not, here’s the most interesting part. From lesson 3:

Fair, Isaac’s secret. The first thing to understand is that Fair, Isaac is a for-profit entity, traded on the New York Stock Exchange (NYSE: FI). Their credit scoring system is the heart and soul of their entire business. In the same way that Coca-Cola protects the secret formula for Coke, and Kentucky Fried Chicken guards those “seven herbs and spices” with its life, so Fair, Isaac safeguards the exact formula for the FICO scoring system.

While we understand the need to protect the formula, it’s particularly unnerving to see remarks on your credit file like “Too many revolving debt accounts” and not be able to get a straight answer from anyone about how many is “just right.” Check out this maddening and somewhat humorous account of one man’s attempts to get this information out of Equifax.

Fortunately, Fair, Isaac has issued some information publicly about how your FICO score is calculated. Let’s look at the various components of your credit score and their weighting so we can understand what matters most.

Payment history: 35%
Amounts owed: 30%
Length of credit history: 15%
New credit: 10%
Types of credit use: 10%

Before we get into each category, you need to understand something. The FICO model is designed to identify people who are good credit risks. The “customer” for the FICO score service is not you, it’s the lenders of the world. Only recently have consumers been allowed to view their scores.

The point here is that some of the things that make for a good FICO score may run counter to what you’ve heard us teach regarding good personal finance practices. For example, always carrying a zero balance on your credit cards is the way to go from a personal finance perspective, but it’s actually frowned upon a bit from a FICO score standpoint. Lenders like to see you carry reasonable balances on a manageable assortment of credit accounts because it means that they will make some money from you.

Our advice, when it comes to these potential conflicts, is to worry about your wallet first and your FICO score second.

Perfect profile? Once upon a time, TransUnion had information on their website that indicated what a perfect credit score profile might look like. Please remember that nobody has verified this for us, but we thought you might like to see it. Here goes:

A few (say, 3 or 4) revolving credit cards, each with very high lines of credit ($10,000+), and very low balances on only one (or maybe two) of them at a time.

At least one charge card (American Express, Diners Club, etc.).

All tradelines (information about each account) at least six months old, and at least one more than three years old.

No derogatory notations.

Very few inquiries — no more than one to three in a six-month period.

At least one “installment” tradeline in good standing, i.e., a mortgage, auto loan, or student loan.

One more quick point - we have some anecdotal evidence to suggest that the past two years are significant from a lender’s perspective, so making sure that you don’t have any blemishes in the past 24 months is key. Several mortgage lenders we spoke to mentioned how important it was to be clean for the past two years.

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Author: Polonius
Credit Expert (100+ Posts)
Joined: 19 Jan 2004
Posts: 498
Posted: Thu Feb 17, 2005 5:04 pm

Thanks! That new link gives access to the seminar, and it has some interesting info in it.

Anyone with an hour or two to kill should look at:

www.creditscoring.com/letters/equifax.htm

showing one man’s ardent attempt to get a few simple questions about credit scoring answered–to get the runaround from customer service reps, their supervisors, the supervisors’ supervisors, on and on up the chain of command to the president of the company and the board members…all without ever getting a straight answer to a few simple-seeming questions…with wrong information and conflicting information presented as fact by the parties involved. Nothing’s changed much since the correspondence/phone calls were done in 1997-1998…

Polonius
“Neither a borrower, nor a lender be; For loan oft loses both itself and friend”

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Author: NightStar
Board Monitor
Joined: 07 Nov 2003
Posts: 2616
Location: Illinois
Posted: Thu Feb 17, 2005 8:53 pm

That is a lot of note taking on that one guys part… but the rep is correct Beacon is not one specific scoring model to just give specific answers on. It is broken down into sub models - and there are a number of sub models for each industry.

I am not Equifax savy, but just using Experian as an example - they call their FICO created score (Fair Isaac) so in the food chain it would look like this:

1. Fair Isaac
A. Risk Model
a. Installment Model
b. Credit Card Model
c. Auto Model
d. Credit Union Model
e. Mortgage Model
…..
B. Risk Model II
a. Installment Model II
b. Credit Card Model II
….
2. National Risk Model (This one is an Experian created Model)
….. (then they have break downs for each industry just like listed above)

Beacon is the same it would be 1 in the example with sub sections under it, and then there are Beacon II & III revised as they go…

And they are right, each lender has a score they set to approve, regardless of what the score was based on for each model, they just pick a number and go with it, setting what interest rate to charge for how high the score goes.

I could sell the same exact score and model to two different banks - one will approve sub level say 580 but bank two only goes conventional at 680… just example… they would both be using the same reason codes as excuses to declining people for credit. They just pick the one out of four that was closest to the reason they denied. The reason codes are already there, the banks didn’t pick them, but they will use them.

All we have though is a general generic idea of what will improve credit scores and it is vauge to be applied to all scores no matter that they differ from one to the next. And that not all changes to improve one score will work on another, example would be that you are trying to get auto score up higher - well adding credit cards is not going to improve auto scoring as it would a credit card scoring model… adding auto loans in the past and paying as agreed on them are going to be crucial to the scoring… the credit cards will help, but it is not primary to the auto lenders choice on approval… they rather see installment loans since that is closest to auto loans (set payments over long period of time).

It is one of them subjects that we are going to just be chasing our tails on for a long time to come. It is none the less interesting making observations and trying when we can to get a peek at new information when they do release it, but it is just one grain of sand in the desert.

Best Regards,
Pammila Phillis
Board Monitor
U.S. Citizens for Fair Credit Card Terms, Inc.
http://www.cardratings.com
501-663-0314 PH
501-663-0033 FX

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