Tag: FICO scores

Maximizing your FICO scores through low REPORTED balances

The MOST IMPORTANT balance / limit ratio — maximizing your FICO scores through low REPORTED balances and few REPORTED credit cards with balances.

[This is a post from the CreditFactors knowledgebase]

The balance / limit ratio is one of THE most important FICO score factors. It is calculated by adding all REPORTED limits for your REVOLVING accounts and all reported BALANCES and then dividing the balances by the limits.

Let’s say you have 2 credit cards with reported limits of $1,000 ($800 balance) and $1,000 (with $200 balance).

When the credit limit is not reported, FICO scoring formulas substitute with the reported “largest past balance” and you need to review the myFICO reports to determine what is used for each account on each report!

Divide the $1,000 combined balance by the $2,000 combined limit and you get a 50% B/L ratio, a HIGH ratio, severely lowering your FICO scores.

Maxed out accounts also lower scores, but it’s not as important as your combined ratio. “Open” accounts such as AmEx cards that are to be paid if full every month are not usually included, look for REVOLVING accounts.

Compare your calculated ratio with the reported FICO score factor ratio — it should match.

The B/L ratio is so important, I’ve seen scores barely above 600 with NO derogs but large revolving debt and maxed out accounts.

MANIPULATING the B/L Ratio by paying credit cards EARLY and having only one account with a REPORTED balance.

1) Try to have only ONE credit card with a REPORTED balance.

If you use several cards, you can pay them BEFORE the statement date online and since they usually report the balance at the statement date, it’ll be $0 on the reports.

2) Keep the REPORTED balances on credit cards as low as possible.

From a post to a client:

Your TU 2nd NEGATIVE factor and 4th with Experian:

“You’ve made heavy use of your available revolving credit.
Ratio of your revolving balances to your credit limits 26%”

While listed as a POSITIVE factor on Equifax, the Equifax FICO score would definitely be HIGHER if the client owed LESS on the credit cards.

You may not owe a lot, but you still lose points for the 26% ratio. The best ratio is 1%.

If you have NO reported credit card balances, you’ll LOSE FICO points for not using credit cards.

You can make a partial payment before the statement date and you’ll have the low balance reported. Occasionally a creditor will update during the billing cycle if the balance increases a lot, but I rarely see that.

Make sure that one account always REPORTS a small balance. This does NOT mean that you have to pay interest. You can pay the statement balance in full, just use the card again for a small purchase before the next statement date.

3) Try not to have REPORTED balances close to the limit

If you split up the balance on two cards and the 2nd card would otherwise be reported with a $0 balance, you may not gain anything.

4) Use all your credit cards once or twice a year.

Not only should this keep creditors from closing the accounts for non use, but FICO scoring software sometimes treats accounts that have not been used in a long time as closed.

5) Look for old accounts that APPEAR to be closed.

Many of my clients found that these (sometimes pre bk) department store accounts were still open and they got replacement cards within a few days. Use the account, then pay it off in full AFTER a balance was reported once. Often one phone call for a new card can get you 20 points and sometimes a lot more points if the account was very old.

December 21, 2012
Mortgage credit report: Nice FICO scores with chargeoffs and Asset Acceptance collection

The most recent collection (Asset Acceptance) was assigned in 7/10 and it IS rated despite the dispute notation. My client just received his new mortgage credit report:

EQUIFAX/FACTA BEACON 5.0
SCORE: 678

00038 – SERIOUS DELINQUENCY, AND DEROGATORY PUBLIC RECORD OR COLLECTION FILED
00018 – NUMBER OF ACCOUNTS WITH DELINQUENCY
00014 – LENGTH OF TIME ACCOUNTS HAVE BEEN ESTABLISHED
00010 – PROPORTION OF BALANCES TO CREDIT LIMITS IS TOO HIGH ON BANK REVOLVING OR OTHER REVOLVING
ACCOUNTS
FA – NUMBER OF INQUIRIES ADVERSELY AFFECTED THE SCORE, BUT NOT SIGNIFICANTLY

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August 6, 2012
Part 1: Trans Union FICO score 738 with two charge-offs

The client’s credit reports contained only 4 accounts:

A positive student loan, two charge-offs with $0 balances and a Palisades collection.

Due to the low number of accounts, it is easy to document how FICO scores rate accounts. Tradelines reported by creditors as disputed are NOT rated as derogatory, but DO count for the so important account history.   In part 2 I will document that Equifax FICO scores STILL contain entirely fictitious late payments — myFICO (formerly Fair Isaac) IGNORED my 2/26/07 notice:

Open Letter to Fair Isaac Regarding its Addition of FICTITIOUS Derogatory Data to Credit Reports and Sale of Defective myFICO Reports

More on the myFICO fictitious lates in my next post and for now we’ll focus on the GOOD news, the client’s 738 Trans Union FICO score after Palisades deleted from her reports.

Palisades had filed suit and its attorney notified the client that she would be served. That’s when she contacted me and she then submitted her FACTUAL disputes to Palisades and to its attorney. Palisades deleted from all credit reports shortly after receiving the dispute. It’s been several months now and she has not been served yet.

So she now has 3 accounts on her credit reports, the two charge-offs and one paid as agreed student loan.

The myFICO Trans Union score factors:

Trans Union

Top Negative Factors

There is no recent activity on your revolving accounts.

Your credit report shows no open revolving accounts [?] or it does not report recent information (such as balance or credit limit) about any of your revolving accounts. Your FICO score evaluates your mix of credit cards, installment loans and mortgages. People who demonstrate responsible use of different types of credit are generally less risky to lenders.

What to do about this: You might want to show new activity on any credit card. If you already have a credit card, you can do this by using it and paying it back on time. If you don’t have a credit card, consider opening one. However, be aware that the credit inquiry associated with applying for a new card may lower your FICO score in the short term.

— They forgot to mention that opening a new account will likely also lower the scores because the account is NEW and it will lower the average account history. However, there’s no way around that (aside from becoming an authorized user or joint account holder on an account with good history) and hopefully she’ll soon get pre-approved credit card offers as she recently opted in.

The balances on your non-mortgage credit accounts are too high.

Total amount you owe on all non-mortgage accounts $9545

— The student loan and a “non problem” as the score is fine.

Top Positive Factors

You have no missed payments on your credit accounts.

Number of your accounts with a missed payment 0 accounts

— We have two charge-offs, but they are NOT rated as derogatory because they are reported as disputed by the CREDITORS.

HOWEVER, when applying for a mortgage, the dispute notations may have to be removed due to FNMA requirements and the score will be much lower.

You’ve limited the use of your available credit.

Ratio of your revolving balances to your credit limits Unknown

— This is odd.

You have an established credit history.

Your oldest account was opened 7 Years, 10 Months ago
Average age of your accounts 6 years.

— The charge-offs noted as disputed by the creditors are NOT rated as derogatory, but they ARE rated for the account history (similar to AU accounts). The only positive account was opened in 2/05 and that’s how we know that the charge-offs ARE rated for account history

Two charge-offs, only one positive account and a 738 TU FICO due to the creditors’ dispute notations:

These notations have NOTHING to do with credit bureau investigations after consumers disputed, but they are reported by the CREDITORS, usually after receiving disputes from a credit bureau or from consumers directly. They usually update or verify the accounts, but presumably report with this dispute notation to avoid liability for incorrect credit reporting. I see this notation most often on Citi accounts, followed by Chase and Wells Fargo.

The dispute notations are often reported for YEARS.

Due to FNMA and other agencies’ requirements, lenders now often require the deletion of dispute notations for obvious reasons:

The resulting FICO scores have nothing to do with reality. Of course FICO scores often have little to do with reality, as you’ll see in my next post about the late payments CREATED by myFICO.

If you have dispute notations on your report and their removal would lower FICO scores, you need to find out the current rules / procedures regarding the disputed accounts for your mortgage. If they require that the dispute notation has to be deleted (very likely with such an artificially high score), you should have the dispute notation removed BEFORE applying to avoid being declined or receiving a higher rate at the last minute.

How to get the dispute notation deleted:

If you have TIME, start with a simple dispute to the credit bureau:

[Creditor] account # …: Please remove the description “account information disputed by consumer.”   This is incorrect because I am NOT disputing this account. Please delete this description as it prevents me from obtaining a mortgage.

If they don’t remove the dispute notation, you can call or write to the creditor directly. Of course RECORD all calls if your mortgage is important.

If the removal of the dispute notice is a lender’s loan condition, you should contact the credit bureaus AND the creditor immediately by phone AND in writing.

How to get the dispute notation ADDED to an account:

Submit a LEGITIMATE dispute to the credit bureaus and/or creditor.   If you falsely claim that it is not your account, you might have trouble getting a mortgage later as they often ask what was disputed. There is NO reason why a creditor couldn’t give the exact copy of your dispute to the lender. Lenders already contact creditors about payment histories for mortgages and they could simply request copies of your disputes from any creditor.

Frivolous disputes are not going to help you get your mortgage approved!

However, it is perfectly ok to dispute an incorrect balance or any other incorrect or incomplete data.

OTHER credit scores such as the scores provided by credit bureaus to lenders and the FAKE scores (no lenders use them) sold to consumers directly use different formulas and might well be 100 points lower because they rate the disputed accounts. That’s why it’s SO important to get the myFICO reports when you’re looking for a mortgage.

I’m NOT trying to create business for myFICO and their increase to $20 per report is truly outrageous, but you can start with the free trial for the Equifax score monitoring and you can use up to 30% discount codes for their products.

NEXT: Part 2, the fictitious late payments created by myFICO.

March 6, 2011
NCO utility collection after move lowers FICO scores by over 100 points

My client moved last year, didn’t get a bill and all of a sudden there’s this NCO collection on his credit. He panicked and immediately paid the utility company. THEN he found my websites and I just drafted the disputes for him.

NCO reports only to Experian and Trans Union, so his Equifax report is “perfect”.

The Equifax score is 781:

(more…)

July 30, 2010
ONE inquiry is the 3rd negative factor for 725 Equifax FICO score

Sorry I haven’t posted here in such a long time, been SO busy.

Below are the Equifax FICO score factors proving that just ONE inquiry can seriously lower the FICO scores. And it’s an OLD inquiry from 1/29/09 — about to be ignored. This was not a credit application, but for an AT& T cell phone.

Don’t believe the myFICO (formerly Fair Isaac) lies that the occasional inquiry is insignificant. As the 3rd most important negative score factor, it’s costing my client at least 20 FICO score points.

HOWEVER, while I’m certain that the inquiry also was the 3rd negative factor last August, they only provided us with TWO negative score factors. As the scores get higher, they disclose fewer score factors.

Most likely, myFICO limits the number of negative score factors for “high scorers” because they are worried that people with high scores would question the scores and factors AND have the money to DO something about it.

Equifax FICO score 725

[was 733 in 8/09, but score is lower now due to higher revolving balances]

Top Negative Factors

1. You’ve made heavy use of your available revolving credit.

Ratio of your revolving balances to your credit limits 61%
— was 53% and 2nd factor

2. The amount owed on your revolving accounts is too high.

Total owed on revolving accounts $47741
— was $36945 and was 1st factor

3. You’ve recently been looking for credit.

Your applications for credit in the past year 1 inquiry
— new factor because the score is lower

What’s helping your FICO score

You have no missed payments on your credit accounts

Number of your accounts with a missed payment 0 accounts

You have an established credit history.
Your oldest account was opened 26 Years, 2 Months ago
Average age of your accounts 8 years

You’ve shown recent use of credit cards.
Your FICO score evaluates your mix of credit cards [?], installment loans and mortgages. People who demonstrate responsible use of different types of credit are generally less risky to lenders. You helped your FICO score by showing recent use of a credit card.

You can see the impact of the higher revolving balances. And now just ONE almost 1-year old inquiry is a negative factor.

Positive score factors should be taken with a grain of salt.

They are NOT provided to lenders and often make NO sense at all.

However, lenders often get MORE negative score factors and I highly recommend reviewing the MORTGAGE credit report if you apply for a mortgage. It usually contains FOUR negative score factors and it usually indicates that inquiries impacted on the scores even if inquiries are NOT one of the four most important factors.

KEEP those mortgage credit reports, they’re great if your FICO scores are high enough to not receive 4 negative factors and of course establish DAMAGES if you get anything less than the best rate.

January 25, 2010