Credit Repair and the FICO Score


Although people know that going through the credit repair process is important, everyone needs to know why. The bottom line is that the FICO score, which are then numbers associated with each person?s credit report, is what creditors look at when determining whether credit would be offered. When a credit report has numbers that drop, being able to buy anything, get some jobs, and enjoy low interest rates also fades. However, when credit repair is done and the numbers rise, the individual regains buying power.

The FICO score used on an individual?s credit report is based on the developer, Fair Isaac and Company. Lenders depend on this score heavily and while the exact formula used is not public knowledge, consumers can know the definition of categories, as well as some of the relevant factors. Knowing the FICO score is one of the best things a person can do. If the numbers are low, then he or she needs to begin the process of credit repair.

For anyone in a program specifically for credit repair, understanding the logic that goes along with the scores is helpful. For starters, the Fair Isaac and Company focuses attention and efforts for providing lenders with a means of measuring risk versus value when it comes to lending consumers money. Many years have been dedicated to the development of the formula, which has proven critical. Again, consumers need to know what their credit score is so that if there are problems, credit repair can begin.

One of the first categories associated with the FICO score is payment history. As people go through the credit repair process, they will focus a lot of attention on how payment history is reported. Unfortunately, this area is often misrepresented in that a person might pay a loan off or pay a balance down but the creditor fails to report the updated information. Therefore, with payment history accounting for 35% of the total FICO score it is imperative the people pay extra attention when working on credit repair.

The second category of the FICO score is the balance owed for both revolving and installment accounts. This category is responsible for 30% of the FICO score, meaning it too needs to be looked at closely while doing credit repair. What happens is that when someone makes a purchase such as a new car or charges things on a credit card, the score will see this as something new and unknown. With that, creditors are provided with a slight caution. When the consumer begins making payments as scheduled, the questionable report now becomes positive. Even so, balances can be wrong so while working on credit repair, numbers should be studied.

People need to know that balances for revolving accounts are a little different and in fact, when it comes to credit cards, they can actually do harm to credit reports. The most important thing a person needs to do is never charge more than what can be afforded, pay monthly installments on time, and if possible, pay the full balance within a 30-day period. The reason is that the FICO score uses a balance to limit ration of 20, 40, 60, 80, and 100% with the lower scores being best and the higher scores bad. Again, when going through credit repair, balances are crucial.

Next is the age of the account. Although only accounting for 15% of the FICO score, this too is an important part of the credit repair process. Unfortunately, a person has no control over installment age since once the loan is paid, it is paid but in the case of revolving credit, the story is somewhat different. Rather than start cutting up credit cards for credit repair, people want to pay off the highest interest cards but also hang onto the cards they have had the longest. The reason is that this shows established credit, which creditors love.

The last category of the FICO score, using up the last 10% is inquiries and new credit. This is actually vital when going through credit repair as a means of preparing to make a major purchase such as a home or car. The reason is that too many inquiries by third-parties make it appear as if the person is desperate for money. Therefore, people working on credit repair need to make sure that any inquiries on the credit report have been authorized. Otherwise, being approved for a home or car loan may not happen.

While not a part of the FICO score, individuals also want to be careful when it comes to new credit cards. A common mistake is running out and buying just for the sake of spending money. However, to creditors, seeing a new credit card on a person?s report and one with a high balance is considered the worst thing ever. Making good decisions and going through credit repair is the best way for a person to get finances under control and increase overall FICO score.