Martin Lukac asked:


Do you know what your credit score is? Many people understand that they have a credit score, but they don’t really know how it is actually calculated. If you want to improve your score or maintain good credit you should know how credit scoring works.

Credit scoring is the way that lenders determine how likely you are to pay back the money you borrow. It basically represents you risk level. The lower your score, the higher a risk you are to a lender. The higher your score, the less of a risk you will default on a loan.

With good credit comes low interest rates and favorable terms. Your credit score will determine much more than interest rates. Lenders, landlords, cellular companies and even your insurance company will look at your credit score in determining whether or not to do business with you. If you have a low credit score, you may pay higher insurance premiums and have a harder time borrowing money.

You’ve probably heard of your credit score called a FICO score. This is the score based on the Fair Isaac & Co. credit scoring model. These scores are based only on the information found in your credit report. FICO is not the only type of score out there. You can have a different credit score from each of the three major credit reporting agencies. It is possible to see as much as a 50 point difference between two scoring sources.

There are five major factors that go into your credit score. They are weighted differently, so some parts appear more important than others. However, they all will affect your final score.

1. Payment History

Your payment history makes up 35% of your total credit score. Your payment history considers whether you pay your bills on time or are late making payments. It will look at the frequency of late payments and how far behind you are on payments. How many accounts do you pay on time? Have you had major credit problems or filed for bankruptcy? Paying your bills on time each month will raise your credit score.

2. Amount Owed

The amount you owe will determine 30% of your total credit score. This section looks at the total amount you owe and what types of accounts you have open. Do you have large balances on all of your accounts? How much available credit do you have in comparison to the amount you owe? How much have you paid down on your accounts since they were originally opened? Paying your accounts down responsibly and not having high balances on your credit cards can raise your score.

3. Length of Credit History

The length of your credit history will result in 15% of your credit score. The longer your credit history, the higher your score. How long you’ve had certain credit accounts open will affect your score, as well as how long it has been since you’ve used your accounts.

4. New Credit Accounts

Ten percent of your score is based on how many new credit accounts you’ve established. How many new accounts have you recently opened? How many requests for your credit have been made? How long ago where you shopping for credit? Rate shopping usually will not hurt your score if they are made within a short period of time.

5. Overall Mix of Credit

The final 10% of your credit score is based onn the mix of credit you have — credit cards, installment loans, mortgage loans, secured loans, etc. The more balanced you are, the higher your overall score in this area will be. You want to have a mix of all types of credit.

There are several ways to improve your credit score. Start by paying your bills on time. This is the one factor that will make the most impact on your credit score. Pay down your debt and limit your applications for new credit. You should also check your credit report and take the time to correct any inaccuracies.

John G asked:


Do credit repair companies work? I want to build or buy a house for my family .This is no joke , I have seven kids . So it’s very important that I get a good P.M.I. and a good interest rate or I’ll never be able to afford it. I make about 60k a year , but one of kids had to have 5 brain surgeries right after she was born and this ruined my wife and my credit . Any suggestions would be appreciated. Please , serious stuff only.

Lester J asked:


I need to repair my credit and need someone who is experienced and knows what he is doing. Im in southern California, can anyone recommend someone?

Thomas Boston asked:


A bad credit score can affect so many different areas of a person’s life, and makes life far more difficult than if you had a good credit score. A bad credit score can lock you out of the best loans, best credit cards, best apartments, houses, and even jobs. Because of this, repairing a bad credit report is extremely important and should be taken on with all the strength and gusto that can be mustered.

The problem is that there is a lot of conflicting information out there about how to repair your credit score, and some of this information is just flat out wrong. Then you have the thousands of guys who want your money before offering any information at all, and outright scammers on top of that. The good news is that while there is no guarantee that every person in the world can upgrade their credit score ‘X’ number of points in ‘X’ amount of days, for most consumers with bad credit in the low to mid 500s or even worse, there are definite ways you can repair your damaged credit score quickly, and 120 points or more isn’t out of the question.

Step #1: Stabilize!

Some of you might already have done this step, but for those who haven’t this is critical. Don’t overpay all your credit card bills $20 a month when you have an old $150 bill sitting in collections. That doesn’t make any sense. The first part of quickly turning around your credit score 120 points or more is to stabilize your current situation.

This means every single bill needs to be paid on time every month. If you have bills that are 120 days or more overdue, pay them or work out a payment plan to avoid those from going to collections. If your bills are 90 days overdue, keep them from going 120. Same process with bills that are 30 and 60 days overdue, and especially for bills that are late, but haven’t hit that 30 day mark where most get reported.

Some credit bureaus have your history of on time (or not) payments account for up to a third of your entire credit score. Even if you’ve been bad about this, paying all your bills on time for even a few months after a long history of not can show immediate dividends for your credit score. On the other side, getting hit with one 30 day overdue mark can drop you 50 points or more in one hit.

Many other credit scores have the 30 day mark account for up to one third of your credit score, so do not let late bills hit this bench mark. Once you are stabilized so you are at least paying all of your bills on time, add an extra penny to credit card bills, car loans, mortgage loans, bank loans, or student loans.

This is my favorite trick for helping out the credit scores of really cash strapped consumers. Your credit score records if you pay on time and if you pay the minimum or pay more. You get more positive points on your credit score for paying more than the minimum, but most credit scores don’t differentiate between whether you pay $100 a month extra, or one penny a month extra. Those extra pennies can add a nice little boost to your credit score.

Step #2: Check Your Credit Reports and Clean Them Up!

Every consumer is entitled to one free credit report from each of the three major credit reporting bureaus per year. Order all three and take a close look at them. A conservative estimate says that over 30% of all credit reports will have errors of some type on them. You will want to remove all the incorrect information immediately, especially if you have a common name. It is not uncommon for someone else’s information to appear on your account

Have all incorrect information removed. For some people, this action alone could result in a 120 point jump if someone else’s negative information is on your account. Getting your credit reports to reflect on you specifically is the first step to fixing your credit score. There is a second part to this step, one that involves advice given by many credit repair “experts” who give the wrong advice (we’ll correct the myth here).

Many will give advice to challenge every negative item on your account. Unless you only have one or two black marks, do NOT do this! First of all, it will set off a red flag. If your requests get marked as frivolous, then not only will legitimate problem accounts not be removed, but they can prevent you from challenging in the future. This means if you have a negative account that hits the 7 year mark and should therefore be removed, but isn’t, you have no way to get that black mark removed even though by law that’s your right.

If there are one or two accounts you do question, do ask for evidence of these late charges. That’s the key. Don’t categorically deny that this is your debt, but ask for evidence. If the company doesn’t respond in a timely manner, the challenged mark is removed. But never challenge more than one or two accounts at one time unless there is an actual concern of identity theft.

Step #3: The Magic of 50%

One of the biggest factors of anybody’s credit score, and perhaps maybe the most underreported, is the “magic” of the 50% mark. A huge part of your credit score at any given time is amount of credit you’re actually using as opposed to your total credit available. So if you have $10,000 in total credit card limits, and are using $9,000 of that, then you’re using 90% of your credit, which is really bad.

That percentage is a huge factor in your credit score. Everything above 50% is considered poor (and gets worse the closer to your limit you get) while everything below 50% is considered good and improves your credit score. This is figured on BOTH an account by account basis, as well as total over all debt. So even if your overall debt is too high to quickly pay under 50%, you can still improve your credit score by paying enough off several small credit cards to knock them all below that seemingly magical 50% line.

Credit score wise, it’s better to pay $400 to three small credit cards and get them all below 50% than to pay $400 to a large credit card (say an $8,000 used out of 10k available). You then will get extra points on your credit score for those three small credit cards that are under the 50% line. Eventually you want to get all your debt under this line, and once you do the effect is immediately noticeable on your credit score.

Another way of accomplishing this if you don’t have a lot of money to ask for a higher credit limit from companies you have a good payment history with. If you’ve missed payments, they won’t agree, but if you have a good payment history, many will. You might owe $300 on a $500 credit card, but if your credit limit is bumped up to $800 then you’re already under 50%. Not only does this help your score on that card, but it adds to your total credit, meaning you’re filling up less of your total credit, as well.

Step #4: Not Falling for Myths and Using Common Sense

In the end, there is no trick for improving your credit score if you are going to keep charging and spending more and more. The other advice to keep in mind is to avoid these common credit score myths:

1. Closing an old credit card account helps you credit score. This is a myth. After paying off a credit card you want that account to stay open, especially for older cards since length of credit history is critical to your credit score. Pay off the card, but do not close the account.

2. A debt consolidation loan will help my credit score. Actually, in the beginning this will hurt your score not only because of the addition of a large new loan, but also because it indicates trouble with debt. In addition, many people will then use their credit cards, digging themselves into a hole yet again. Consolidation might help with paying off debt, but it does NOT improve your credit score the majority of the time.

3. Common sense: stop using credit cards. You can’t improve your credit score while constantly adding to your balance. It’s just not possible, and anyone saying otherwise is trying to scam you.

Follow these four steps, and you will be able to see a huge bounce in your credit score in a very short time, even up 120 points or more.