Credit Scores - How to Protect yours

May 12th, 2011 9:15 AM by Andrew Walter May CEO

How to Improve your Credit Scores at no cost

Credit Score Improvement Guide

By Andy May

To raise your credit score by up to 20 points - opt-out of all junk-mail solicitations from credit card companies and others. Go to and register to opt out.

You will get two benefits: First, your score will improve by up to 20 points. Secondly, you will save the environment by saving on gas used to deliver your mail, paper used to produce this junk mail, and you'll stop having to waste time opening solicitation junk mail.

Here's some more "how to improve your credit score" information. But first, let's give you a little background:

What: How to improve your credit score.
Who: Credit Bureaus rank you from 350-850 (scores). There are 3 repositories that collect and report your data to any company that you want to buy a financial product.
When: Everyday.
How: They use a simple model like: ax+by+cz ----- where a, b, and c are coefficients (0-100%) and x,y, and c are the factors that they rank you on.

This is a simple Factor Model, or Discriminant Analysis Model.

Example: Years of Credit Experience = "x"; Factor for "a" = 25%. So, if you're older you would potentially get 100% of 25% for the full 25 points; say age 55 or older. The credit bureaus don't report exactly how they score you.

And you thought there wasn't age discrimination in America? Well, one of the factors is years of credit experience. How can you have a lot of years if you aren't older? Proceed carefully if you are thinking of getting your 14 year old a credit card.

In any case, younger people have lower credit scores as a result of this factor - which contributes probably as the second most important factor when scoring your credit.

First is i) on-time payments for everything (never-ever-never miss a mortgage payment - then comes installment payments (ie: auto) then comes revolving credit (credit cards)). Second is ii) your age (aka: years of credit experience). Third is job stability (yes, moving lowers your scores). While there are other factors, it's kind of like getting your website ranked in google. The Credit Bureaus, like Google, change the factors all the time.

That makes it interesting, as the Credit Bureaus really can't tell how good you are at managing your credit going forward - only how good you managed it in the past. That's why your age is so important to them.

Education also plays a role in how high your score is. The more years of education - the better your score should be. However, the credit bureaus aren't sophisticated enough to make these adjustments at this time.

So, you want to raise your score? Here are other ways, with the author's scale of 1-10 (10 best) to rank order my opinion on how to improve your score:

1) Opt-Out of Credit Solicitations (10) - see above for web address;

2) Raise your credit limits on your card (10) ; this pushes your useage of credit down. If you owe $15k on a limit of $15k on your credit card - that's 100% use. You want to be under 50% - so call your credit card company and have them give you a $30k limit. This will improve your score;

3) Check your credit report (not the free ones, as those are "fake" reports and you won't know who is reporting you delinquent - call your local mortgage broker and ask them to do it for you. They may be able to save you some money on your loan anyway. And it's only $20 to pull all three bureua scores. If there is a mistake on the report, have your mortgage broker fix it with you - or if you're in real trouble, your mortgage broker can refer you to a credit specialist that they work with regularly. I've often seen scores improve 150 points by removing erroneous reporting. So, I'd give this one a (8) because it doesn't apply to everyone;

4) Do NOT close your cards. If you do your score will drop by up to 25 points. If you want to pay off a card, that's great. But closing an account is not good. It will lower your scores. (10);

5) Put your mortgage in only one spouses name - both on the deed. This will lower the indebtedness that the computer model sees for one of the spouses. That way you'll always keep one spouses credit "clean". (4);

6) Put student loans in forebearance. This eliminates your payments from your debt to income calculation and can allow your to qualify for a mortgage. Speak with your mortgage broker about this. As far as improving your score - (2);

7) Obviously, pay everything on time (10);

8) Don't get those silly "save 10%" on your Home Depot purchase. That costs you on your credit score. Yes, you will save $100. But I've seen that cost borrowers $10,000. Their score dropped below 620 ......same thing for purchasing a automobile. Don't do it before you buy a home - do it after. (5).

9) Ok, this I only give a (3) because it's kind of become an issue in the mortgage industry and I don't particularly condone it. Add yourself to a person's credit card that has a good score. For example, you are getting married. Add your poor scoring spouse to your long credit history on a card that you've paid on time for the last 10 years. That'll improve the score of the other spouse. Again, (3) since I don't condone this entirely. The example above is obviously fine.

10) Pay your mortgage on the 30th - not 2 weeks later. Paying ahead of time can improve your score a few points. (2). Also, don't worry about having your credit scores pulled. That only lowers your score 1-5 points, and you can pull it many many times over a 30 day period (as long as it's a similar financial institution - like mortgage cos. or auto cos.....not both).

I hope you've enjoyed reading this article. There is a real art to improving your score. In fact there is an entire credit improvement industry - where a professional will charge you $500 to consult with you. DO NOT pay your mortgage broker or anyone associated (paid by) with the mortgage broker. You want a pro, not a mortgage broker. We can help you - but we shouldn't be spending all our time fixing your credit scores - rather, we should be getting you into a great mortgage (and not the pay option arm!). If we are spending a ton of time on your credit scores, you'll over-pay on your mortgage - a lot more than the standard $500 charged by Credit Repair Specialists like Shannon Hart in Dallas, Texas.

So, split the two functions up and save money. Get your credit improved by a credit repair company and then get your mortgage through a mortgage company.

Posted in:General
Posted by Andrew Walter May CEO on May 12th, 2011 9:15 AM


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