Monday, January 15, 2007

My Credit Score

I was given a year's credit monitoring with Transunion, as a result of some of my personal information having been exposed. As part of that I get my FICO score.

My score is 773 of a possible 850. But several years ago, I had a score over 800. What made it decline? There are no late pays, inquiries, or other negatives. And I pay off my credit card balances every month.

Along with my score, I got the following analysis of how to improve it:

There are not enough accounts in good standing on your credit report. Having credit available to you is a sign that you are able to manage your finances responsibly. Lenders like to see that consumers have a large amount of credit available to them, but not so much that they could spend more than they could afford to pay back. If you currently have multiple accounts open with high balances, try reducing your balances below 35 percent of your limits to improve your score. If you do not have many open accounts, consider opening a new credit account or asking your creditors to increase your limits in order to improve your credit score.

There are not enough bank installment accounts on your credit report. A healthy balance of credit and loan accounts is key to achieving a high credit score. It is important to build a record of responsible credit use over time with different types of accounts. Consider opening a new account to strengthen your credit report and improve your score.

The difference appears to be that when I had the higher FICO score, I also had a mortgage which I have since paid off. Since I then had no debts, my score declined.

I'm not about to buy something on time just to pump up my FICO score. A 773 score puts me ahead of 87% of the population, according to the report, and should be respectable enough to keep from negatively impacting my insurance premiums. I am thinking of getting a third credit card, the EmigrantDirect 1.4% cash back MasterCard to use instead of my DiscoverCard.

12 comments:

Gaming the Credit System said...

Thanks for this info! I saw your comments at AFM. I have talked about this kind of FICO score manipulation on my blog but never had any solid numbers to back it up.

Kitty said...

Very interesting. I paid off my mortgage a couple of years ago, and as I don't plan on taking any more loans I haven't checked my credit score. I've also been always paying off my cc bills in full every month. I was wondering how my paying off mortgage affected my creidit score, but never checked. What I don't understand is if your credit score is affecterd by the ratio of available credit to debt, how come getting rid of a huge chank of debt (mortgage) is having negative effect on the credit score. Do they count mortgage as available credit rather than debt? I am confused....

So if I understand it correctly, having multiple credit cards that I don't use laying in my safe deposit box positively affecting my credit score? Does it matter if I activated the cards or not?

EMF said...

@Gaming: Thanks for the comments.

@Kitty: I think the evaluation of debt to credit limit applies only to credit card debt Vs credit card limit when the FICO score is computed.

As far as installment debt (such as a mortgage or car loan), I think what they're looking for is that there's a recent history of your having kept up with a payment schedule. With a mortgage being such a debt, there's no recent history to be evaluated.

But it sure is nice not having to write and mail a mortgage check every month!!!!

Now when you apply for an installment loan, I imagine that they'll pull your FICO score. But they'll also want to evaluate how much of your income is required to service your debt. The FICO score is more a measurement of your character, the rest would be a measurement of your capability.

I don't know about un-activated credit cards. This isn't something I do -- all my credit cards (all both of them) are activated. Have you checked your free credit reports at http://www.annualcreditreport.com/? If not, get the reports and see if they show these accounts. If they're on your credit report, they're probably part of your FICO score. I understand that new credit cards can hurt, but if you've had them awhile, I think they'd be helping your score provided they are being reported.

Curious as to why you haven't activated them. Yes, I understand that some people need the artificial barrier to unnecessary use because they don't have self discipline. Having paid off your mortgage suggests you're in the group that has self discipline. I have self discipline, as I don't charge anything I can't afford to pay when the bill shows up in the mailbox. But if you need to hide them from yourself, activate them, then on the way to your safe deposit box, use them to fill up your gas tank, hide them in the safe deposit box, and MAKE SURE to pay the bill when it arrives.

I understand that some cards don't report credit limit, but only show high balance which is then regarded as your credit limit for FICO purposes. If you have a card like that, either charge a major purchase to it (and pay it right away) or cancel it.

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