Your credit score is the single most important factor which determines whether lenders will loan money to you. There are other factors but credit score is usually the most important ones in most consumer credit transactions.
There are many, many things to know about credit scoring, and there is also a lot of unknown information because the Fair Isaacs Company, the company which created the basic credit scoring models used by all three major credit bureaus, hides its Frankenstein-like creation away from public scrutiny. Not unlike the recipe for Coca-Cola, there are very few people on this earth today that completely understand how credit scoring works.
There are a few things known to the public, which you should know as well. My postings here will probably be over several blog entries because there’s a lot to know on this.
1. Recent delinquencies have a much greater impact on your credit score than older delinquencies. If you’re in a position to pay off some debt and you’re concerned about getting the greatest improvement in your credit score, pay off any recent delinquencies first AND insist that the credit grantor or debt collector mark the account as “paid in full”. If they mark it as “settled”, this can negatively impact your credit score.
2. Many credit score experts have advised that ignoring older delinquencies entirely may well better than paying them off. Older delinquencies tend to fall off your credit report after seven and one-half years anyway, and if they’re older than a year or two, they are probably having a rather minimal effect on your credit score. Also, if you work out a payment plan or pay only a part of the debt to settle it, the creditor will often mark “settled” on your credit report, which itself is a derogatory mark which will depress your credit score.
3. Insist that all of your creditors report available limits on your open credit lines. Creditors sometimes don’t report available credit limits because other creditors look at your credit report to decide whether to offer you credit. If you have several credit lines for, say, $25,000 each and you have balances of less than $1,000 on each one, this looks appealing to a potential creditor. If the creditors are not reporting your credit limits, this can affect your creditworthiness by making it appear simply that you have a lot of open credit lines, not that you maintain a relatively low balance on them.
4. If you have a legitimate dispute about a tradeline on your credit report, by all means dispute it, dispute it frequently and remember to dispute it to both the credit bureaus and to the involved creditor. Fair Isaacs is not supposed to score a disputed negative trade-line, so if it’s marked as “disputed” on your credit report it is not supposed to affect your credit score.
That’s my post for today, October 2, 2005. Thanks for reading.
Bob Brennan