FICO Credit Scores and Increasing Your Creditworthiness
How to Increase a Credit Score
Credit scores are one of the largest f actors that lenders use in evaluating whether or not to lend money to a
borrower. Credit scores are designed to measure the risk of someone def aulting by taking into account various
f actors in a person’s f inancial history.
If you are considering purchasing a Massachusetts home one of the things you want to be sure of is the
accuracy of your credit report. The economic down turn of the last f ive years has vastly changed the
mortgage landscape all across the country.
If you ask any mortgage broker they will tell you that things have changed in the mortgage industry on a
monthly basis. Given the increase in f oreclosures and short sales lenders have increased their standards when
evaluating the potential f or def ault of every borrower.
One of the tools that lenders use to evaluate the borrower to repay a loan is what’s know as their FICO score.
The FICO score was developed by the Fair Issac Corporation. The company was f ounded in 1956 and their
scoring programs are of ten used to assist lenders in managing credit accounts, detecting credit f raud and
automating lending decisions. The FICO score is a standardized approach that helps lenders deliver decisions
on loans in an ef f icient manner.
FICO scores can range f rom 300 to 850 with 850 being the maximum possible score. According to the FICO
scoring system there are f ive f actors that determine a borrowers score. Using these guidelines can help you
improve a credit score!
35% — A borrowers payment history carries the most weight – Late payments on bills including a
mortgage, credit card or automobile loan, can cause a consumer’s FICO score to go down. Paying your
bills according to the contract you signed will over time help improve a consumer’s FICO score.
30% — The borrowers credit utilization – The ratio of current outstanding debts such as credit card
balances to the total available revolving credit ( your credit limit). You can improve your FICO score by
paying of f debts and lowering your utilization ratio. The closing of existing revolving accounts will
typically adversely af f ect this ratio and theref ore have a negative impact on your FICO score.
15% — The length of credit history – As your credit history gets longer, assuming you pay your bills
on time, it can have a positive impact on your FICO score.
10% — The types of credit used (installment, revolving, or consumer finance) – There is some
credit given to having a history of managing dif f erent types of credit.
10% — A recent search for credit or amount of credit obtained recently - If you have multiple
credit inquiries as a consumer seeking to open new credit, such as credit cards, retail store accounts, or
personal loans, it can hurt an your score. Applying f or lots of new credit in a short period of time is also
viewed as risky and can cause a drop in an individual’s score. What should be noted however is that if
you are shopping f or a mortgage or auto loan over a short period of time you should not experience a
decrease in your scores as a result of these types of inquiries. So if you are buying a home and apply to
multiple lenders and they all do their credit checks you are not supposed to be penalized.
FICO scores do not take into account a borrowers salary, employment history, where they work, rental
agreements, child support or other such obligations or interest rates on any current loans.
Generally speaking a credit score that is over 720 is of ten considered an excellent credit score. A score of 680
– 719 is considered good. A score that f alls between the range of 620-679 will usually make the lender
scrutinize the f ile f urther. Having a score that f alls between 585-619 will typically disqualif y you f rom getting
the best rates. A score below 584 will make many lenders question whether or not they want to do business
There are actually three companies that report credit scores to lenders. They are Equif ax, Experion and
Transunion. The scoring of these agencies can of ten vary quite a bit. Each of the bureaus collects dif f erent
inf ormation on the borrowers which can change the f inal score. Given how the credit scores can dif f er f rom
the various agencies if you are f alling on the edge of one of the credit ranges it may be prudent to apply to
more than one lender. For example if you had a score of 675 at one agency it is quite possible you could be
700 somewhere else which could give you a better rate! It should be noted that the credit scoring model was
slightly altered in 2009 and could ef f ect your score either up or down by 20 points.
In the new model credit problems and issues will be ranked according to number and magnitude more
specif ically than bef ore. The new FICO scoring system also f ocuses less on how many accounts a borrower
has and more on the amount of balances carried.
The statistical models that are used f or generating credit scores are subject to f ederal regulation. The Federal
Reserve Board’s Regulation B (implementing the Equal Credit Opportunity Act), expressly prohibits a credit-
scoring model considering “prohibited biases” such as race, national origin, sex, religion and marital status.
The law also states that credit-scoring models must be empirical and statistically sound. In addition, if a
borrower is denied a loan based on credit, the lender must state to the specif ic reasons f or the denial. A
statement that the person did not score high enough is not acceptable. Thee reasons f or denial must be
specif ic. For example there were too many late payments of 60 days or longer.
So how does one go about improving their credit score to get the best rates that lenders offer? The
answers are actually pretty simple!
Pay all of your bills on time every month.
Pay of f all of your existing debt.
Unused credit cards should not be closed. This can sometimes lower your credit score.
Do not open a bunch of new credit card accounts in a short period of time.
A f ew years ago it was not uncommon to hear of mortgage brokers or credit repair companies doing what was
known as “doctoring” a persons credit.
A major portion of the FICO credit score is set by the ratio of credit used to credit limit. What was happening
was they would increase the score by simply increasing your credit limit. Some of the credit-repair agencies, f or
a f ee, would report to the credit bureaus that they have opened an account with a high credit limit. The
customer could not actually use this account but it would improve the customer’s FICO credit score due to
lowering the balance-to-credit-limit ratio. This is no longer allowed!
When you are starting your home search and getting your pre-approval f rom a lender one of the other things
you should do is get a copy of your credit report f rom each of the three report bureaus. As a consumer you
are allowed to get one f ree credit report each year f rom Equif ax, Experion and TransUnion.
With this knowledge is hand you should be well armed to position yourself f or the best mortgage rate possible
and increasing your credit score!
About the author: The above Real Estate inf ormation on How to improve a credit score was provided by
Bill Gassett, a Nationally recognized leader in his f ield. Bill can be reached via email at
firstname.lastname@example.org or by phone at 508-435-5356. Bill has helped people move in and out of many
Metrowest towns f or the last 24+ Years.
Thinking of selling your home? I have a passion f or Real Estate and love to share my marketing expertise!
I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland,
Holliston, Mendon, Hopedale, Medway, Franklin, Framingham, Upton, Grafton, Northbridge,
Shrewsbury, Northboro, Bellingham, Uxbridge, and Douglas.