raising fico score


R

rwilson290

Hi,
I just came into a small amount of money...enough to pay my credit
cards and probably give me a down payment on a house.

My fico score ranges from 564-610 depending on what bureau you look at.



-8 credit cards ranging in limits from 500 to 6000, most of which have
been maxed out until recently.
-I have 2 active installment loans, 1 for 3000 and one car note with
about 10k left on it.
-Most of the credit cards show up as paid on time every month. Perhaps
2 of them have a couple of 30 days late indicators on them over the
past year.
-I also have some inquiries from when I was looking for a house last
year (at that time I had a high FICO of 610, and got approved for 300k
with nothing down based largely on my salary I suppose)

I want my FICO score to be as high as possible when I apply for a
mortgage loan this March/April (ie. in the next 4-5 months)

-How many credit cards is good? I feel that I have too many.
Presuming I pay them all off and keep all of the balances at ZERO which
I'm currently in a position to do, would it be better to say that I
should close the accounts that have low $500 limits in favor of the
accounts with higher limits (2000, 3000, 6000)?

-I have a couple old old accounts for which I paid less than the full
balance and the creditor closed them out. They actually show up as
POSITIVES in my credit report because they are so old (older than 7
years). However, in the Notes field of my credit report it says
"Account Closed By Credit Grantor". Does this "Account Closed By
Credit Grantor" work against me when looking for a mortgage even though
the rest of the account shows up as a positive since it's older than 7
years? If it does, then perhaps I should motion to have it removed.

-I tried the FICO Score Simulator that comes with ScorePower on the
equifax site and it said that I can raise my Fico Score from 564 up to
650-694 if I pay off all my credit cards over the next 3 months. I can
do this (due to the money that I now have), but is it better to pay
them off all at once now, or should I do it in installments over the
next 3 months to simulate regular payments, or perhaps it doesn't
matter either way.

-If I pay off my car note, and the other installment loan (both of
which I am in a position to do right now) will this also raise my fico
score? I presume yes.

-Some of my credit cards let me maintain a "credit balance" by paying
more than I owe. Does this help me with FICO or is it a waste of my
money and energy to make sure these cards have a negative balance in my
favor?



Thanks.
 
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J

John A. Weeks III

-8 credit cards ranging in limits from 500 to 6000, most of which have
been maxed out until recently.
-I have 2 active installment loans, 1 for 3000 and one car note with
about 10k left on it.
-Most of the credit cards show up as paid on time every month. Perhaps
2 of them have a couple of 30 days late indicators on them over the
past year.
That is a lot of debt. Unless you are supporting an Army in Iraq,
I don't see how you can spend that much more than what you earn,
unless you have some very bad spending habbits. I fear that if you
pay anything off, you are going to right back here max'ed out in
a few months. The only thing that saved you so far is that you
were maxed out and couldn't do any more damage to yourself.
-I also have some inquiries from when I was looking for a house last
year (at that time I had a high FICO of 610, and got approved for 300k
with nothing down based largely on my salary I suppose)
Inquiries like this only count as one entry if they happen in some
reasonable time period. They don't hurt you that much.
I want my FICO score to be as high as possible when I apply for a
mortgage loan this March/April (ie. in the next 4-5 months)
That is a rather short time period to make much of a change. Your
real hope is getting above 620, which moves you out of the deadbeat
category into a range where you can get an OK mortgage. You
really want to be in the 680 to 720 range to get the best mortgage,
which might take a year or so of good behavior.
-How many credit cards is good? I feel that I have too many.
Presuming I pay them all off and keep all of the balances at ZERO which
I'm currently in a position to do, would it be better to say that I
should close the accounts that have low $500 limits in favor of the
accounts with higher limits (2000, 3000, 6000)?
It is pretty common for people to have 6 or 8 bank cards, plus
another handful of store and gas cards. What the FICO program
looks for is having a balance that is a certain percentage of
your total credit available. That is, you want to have a total
credit limit that is about 1/2 your income or so, and then, for
FICO, use about 15% to 20% of it. That doesn't make the most
sense from a financial standpoint, but it will help your FICO score.
-I have a couple old old accounts for which I paid less than the full
balance and the creditor closed them out. They actually show up as
POSITIVES in my credit report because they are so old (older than 7
years). However, in the Notes field of my credit report it says
"Account Closed By Credit Grantor". Does this "Account Closed By
Credit Grantor" work against me when looking for a mortgage even though
the rest of the account shows up as a positive since it's older than 7
years? If it does, then perhaps I should motion to have it removed.
No, those are dings. Any time you get a "Account Closed By Creditor",
you have been spanked. The ones that are over 7 years old will not
be figured into your FICO score. If they do show up, a mortgage
agent may still ask you about them. Point out that they are over
7 years old, and that should satisfy them.
-I tried the FICO Score Simulator that comes with ScorePower on the
equifax site and it said that I can raise my Fico Score from 564 up to
650-694 if I pay off all my credit cards over the next 3 months. I can
do this (due to the money that I now have), but is it better to pay
them off all at once now, or should I do it in installments over the
next 3 months to simulate regular payments, or perhaps it doesn't
matter either way.
The best financial move is to pay them all off now. The best move
for FICO is to keep a balance and keep paying the expensive interest.
See the note above.
-If I pay off my car note, and the other installment loan (both of
which I am in a position to do right now) will this also raise my fico
score? I presume yes.
Again, this is a great financail move, but keep in mind the FICO
rewards one for using credit, and if you pay them off, you are no
longer using them.
-Some of my credit cards let me maintain a "credit balance" by paying
more than I owe. Does this help me with FICO or is it a waste of my
money and energy to make sure these cards have a negative balance in my
favor?
Unless you are getting money market interest rates or better on these
negative balances, throw out the cards and invest your money in a
more legitimate manner. Open a brokerage account, and invest in a
well balanced portfolio that is appropriate to your age and goals.

-john-
 
J

Jim

John A. Weeks III said:
That is a rather short time period to make much of a change. Your
real hope is getting above 620, which moves you out of the deadbeat
category into a range where you can get an OK mortgage. You
really want to be in the 680 to 720 range to get the best mortgage,
which might take a year or so of good behavior.


It is pretty common for people to have 6 or 8 bank cards, plus
another handful of store and gas cards. What the FICO program
looks for is having a balance that is a certain percentage of
your total credit available. That is, you want to have a total
credit limit that is about 1/2 your income or so, and then, for
FICO, use about 15% to 20% of it. That doesn't make the most
sense from a financial standpoint, but it will help your FICO score.


The best financial move is to pay them all off now. The best move
for FICO is to keep a balance and keep paying the expensive interest.
See the note above.


Again, this is a great financail move, but keep in mind the FICO
rewards one for using credit, and if you pay them off, you are no
longer using them.
The above show some points I was somewhat aware of. A few questions:

does it make sense to apply for a mortgage prior to paying off all
debt? At what point should a couple consider a larger home and larger
house payment?

My situation relative to truncated posts/replies above:

My wife and I own a 2 BR townhouse in a Cincinnati Suburb. Good
school district, highly involved in community.

We want to buy a 4 BR house for about $325k. We were approved for a
100% mortgage 2-3 years ago for the house we want to build. We
decided the payment would be too high, so we waited and are trying to
pay off debt.

3 years ago we had debt payments which were MORE than our mortgage
payment.

Car at $450/month, will be paid off in 5/05
Student loans:
10k loan was paid off early in 4/04
13k loan was paid off early in 2/04
13k loan was paid off early in 12/03
17k loans will be paid off in 12/05
10k loan should be paid off in 12/05, maybe 4/06 at the latest.

We have about 15k of credit card debt (car repairs, wedding, 2-3 other
emergenct expenses of $1000+). We pay $950 on this each month, expect
to have this debt paid off in 15 months, once some of other debt is
reduced. We have the last four payments ($3600) for this credit card
in the bank now as our emrgency fund.

So my interpretation of John's post is our FICO scores will be highest
when we have debt, so if we plan on moving to the larger house in
December of 2005, our debt would be close to gone and our FICO score
would be maximized? It should be noted that we need a new car and
have been holding off as long as possible (making expensive repairs,
for example). We want to get the house before the car...

This assumes we could sell our current townhome. We are considreding
renting it at cost/ at a small loss to my mother in law.

Comments on WHEN to apply for the mortgage and when to move in
appreciated.


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding.
 
J

John A. Weeks III

Jim said:
So my interpretation of John's post is our FICO scores will be highest
when we have debt, so if we plan on moving to the larger house in
December of 2005, our debt would be close to gone and our FICO score
would be maximized? It should be noted that we need a new car and
have been holding off as long as possible (making expensive repairs,
for example). We want to get the house before the car...
Often times, what makes for the best FICO score is not what
is the best financial decision. For exmaple, you can pump up
your FICO by moving money between several credit cards. It is
a game, it has risks, and it has no financial gain. The real
answer to your question is continue paying down debt, and make
sure that you are in a very good financial position before you
buy such an expensive home. The FICO score that you will have
by then will get you a very good loan (assuming you continue to
behave and make all your payments on time). You don't need to
get the maximum possible score, rather, just get in the range
for the best loans.

-john-
 
R

rwilson290

Well I've been paying off my revolving debt since mid-November (just
before I made the original post), and the last of the creditors has
reported my zero balance with them back to equifax. So I ran another
ScorePower report through equifax today and whamo in a matter of weeks
my FICO is a hair under 640 from it's previous 564 last month. I'm
stunned. That's a huge leap and a sure sign that all that debt was
really weighing me down into the deadbeat category. This is great.
Just paying off that debt made a huge difference. I still have the
installment loans ($10,000 car note, and the $3k personal loan). I'm
wondering what I can best do now to get that score up. I'd really like
to be above 660 or 670 by the time March/April comes. That would be
fantastic. Perhaps cancelling some of excess credit cards (recall I
have 8 credit cards!).

When applying for a mortgage, which FICO score does a lender use
(highest, lowest, average of the 3)? A mortgage broker once told me
that lenders use the highest FICO score you have. Not sure if the
broker was just trying to paint a rosey picture for me or if they were
telling the truth.


Thanks for the tips.
 
R

Richard Cline

In article <[email protected]>,
(e-mail address removed) wrote:

I have read (I'm no expert.) that cancelling credit cards does not help
your FICO score. In fact it may work in reverse. If you have credit
cards that give you a combined borrowing power of $30,000 but you only
have $3,000 debt your borrowing is listed as low. If you cancel cards
so that your borrowing potential is $5,000 and you borrow $3,000 you are
close to your borrowing limit.

Dick
 
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R

Ram Samudrala

In terms of credit cards, from playing with the FICO simulator, my
guess is the following:

1. Hold on to credit cards which have a high limit. Make sure your
total revolving debt is about 20% of your total revolving line.

2. Cancel the most recent cards if you must. If you have cards that
are several years old, hold on to them. Length of credit history
(which in part is judged based on the average age of your revolving
accounts) plays a role.

3. Your personal loan is probably not helping you much. I'd get that
paid off ASAP.

4. With time, your score will automatically rise if you keep making
payments on time.

Don't you access to a simulator under ScorePower? If not, you should
be getting your scores from someplace else.

Most lenders I've dealt with use the middle score. But Equifax appears
to be the dominant one used when a single score is used.

--Ram
 
R

Ravi Desai

Yes, this is true. Basically, keep your credit cards, but only the ones
without any annual fees or anything. This was your credit limit stays
high for free, and your borrowing is relatively low.
Alternatively, what you could do is cut up your cards and only keep
about about 3 in use; two for regular use and one for major emergencies.
DO NOT stop the credit card plans, just make sure you don't use them.
 
R

Ram Samudrala

Jim said:
The above show some points I was somewhat aware of. A few questions:
does it make sense to apply for a mortgage prior to paying off all
debt? At what point should a couple consider a larger home and
larger house payment?
Whenever you can comfortably afford the new payment.
We have about 15k of credit card debt (car repairs, wedding, 2-3
other emergenct expenses of $1000+). We pay $950 on this each
month, expect to have this debt paid off in 15 months, once some of
other debt is reduced. We have the last four payments ($3600) for
this credit card in the bank now as our emrgency fund.
This will have an influence on your score depending on your total
limit, etc. My own feeling is that if you're paying high interest
rates, then you can do with a smaller emergency fund, since it saves
interest and you can always borrow back on the card, but this does
require you to budget well.

In terms of FICO scores and debt, you can carry a debt on a monthly
basis, pay zero in interest, keep your FICO score high by using
credit, AND make money in the process. Here's how: find a rewards card
without an annual fee (I have two, with rewards/cash back ranging from
1-5% depending on the purchases I make). I charge EVERYTHING I
possibly can to those credit cards (I wish they allowed me to charge
my mortgage to a credit card -- I'm looking to see if there are bill
pay options that will let me pay mortgage through a credit card as a
purchase). Thus I always have a balance listed on those two cards, so
that looks like I'm using credit wisely. Also, for every $1000 that I
spend, I get anywhere from $10-$50 back which I usually just ignore
for a few months and then have a large sum to play with.

You of course have to be extremely disciplined and I don't recommend
this route unless you feel you can really pay off the balance in full
each month. But I know several people who are capable of doing this
and if you can do this, then I find credit cards are a powerful
accounting tool.

--Ram
 
R

rwilson290

That's interesting about them using the Equifax score. I'm not sure
about other folks, but my Equifax FICO is the lowest of the 3. Last
month it looked something like this:

Equifax: 558
Experian: 593
TransUnion: 610

Right now, 1 month later, after pretty much paying off all 11k or so of
my revolving debt and still having 12k or so of installment loans (car
note + personal loan) it looks like this:

Equifax: 636
TransUnion: 643
Experian: 690!!!!!


Is equifax being the low, fairly comensurate with other people's
experiences? So I suppose that's the reason why they don't list
"closing credit card accounts" as an option in any of the FICO
simulators. That's odd though, because I've seen it written that you
can get denied credit for having too many cards, so one would think
that reducing this number would make a difference. The thing about my
card situation is that I have some older cards with 3k-6k limits from
when my credit was in decent shape, and I have a couple new cards with
$500 limits. I was thinking of closing out the newer $500 limit cards.
Thanks.
 
R

Ram Samudrala

Is equifax being the low, fairly comensurate with other people's
experiences?
Yep. They seem to be the most strict about change (but eventually they
do catch up).
So I suppose that's the reason why they don't list "closing credit
card accounts" as an option in any of the FICO simulators.
Not true.
That's odd though, because I've seen it written that you can get
denied credit for having too many cards, so one would think that
reducing this number would make a difference.
In my case, I have about 5 open cards with a zero balance. In a
simulator, closing them all increases the score by 3 points.

Again, beware of closing old accounts. It's better to hold on to them
and use them a little than to close to them.
The thing about my card situation is that I have some older cards
with 3k-6k limits from when my credit was in decent shape, and I
have a couple new cards with $500 limits. I was thinking of closing
out the newer $500 limit cards.
Yep, do this.

I refuse to live life by the credit score. If you get a 1% APR balance
transfer for life (which I have), it makes sense to prepay your home
mortgage even maxing out the card and pay 1% APR instead of 5-6% (even
with the tax break) for the life of the loan (only rule I have is that
if it came down to it, you should be able to pay off the credit card
balance on notice, since you can't trust credit card companies).

--Ram
 
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R

rwilson290

Thanks everyone for the advice. Since I first posted this on Dec 2, my
fico score at equifax is now up to 650! The thing is that it varies
wildly from week to week depending on which credit card is submitting
their monthly report that week and what the current balance on that
card is. Even with these fluctuations though, overall it is trending
upward and much stronger than my mid 550's equifax score last month
which is good. Anyhow, I did not yet pay the $2600 installment loan
nor did I pay off the balance of my $9000 my car note yet. I am in a
position to do so, but in a quandry as to whether doing either of these
will bring the score up some more in preparation for seeking a mortgage
in March/April. While it probably makes sense to pay down the $2600
personal loan, what do you think about the $9000 car note? It's a 5
year note, with 1.5 years left on it at $500/month. If I pay this car
note off now, I get the great benefit of being able to afford
$500/month more for a mortgage, but what might paying off the car note
earliy do to my FICO which I want to be as high as possible in
March/April?

On the one hand I can pay the note off, and have an extra 500/month in
my pocket for a house in a better neighborhood and on the other hand
might paying it off early (even though I've had on time payments on the
note for the past 3.5 years) cause my FICO to take a hit which would
subsequently affect my interest rate and therefore my payment. What do
you think?
 
N

noreplysoccer

you did not mention the payment minimum on the installment loan and how
long it would take to pay that off. I paid the lowest principal
payment first, then used that money (once paid) on other debts.
 
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R

rwilson290

Well the payment on the installment loan is $130/month. It's only a
few months old, and has 2.5 or so years on it. I can easily, and am
thinking I should, pay it off right now.

It's the car I'm not sure about. 80% of me thinks I should pay it off
giving me an extra 500/month in liquidity for a home loan, but I'm just
wondering what paying it off and not having a car loan any longer will
do to my FICO score (even though the car loan has 3.5 years of 100% on
time payments).
 

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