Improving Your Credit Score

If your credit report has incorrect information reported, or if other information (such as paid accounts showing as open) need to be updated, the consumer should contact all three of the repositories to ensure that corrections are made in all three systems. Typically it takes 30 days for the national repositories to investigate and update a credit file when requested to do so by a consumer. Another option for clearing up your credit is through such programs as "Bureau Direct" or "Rapid Re-score". There is a cost associated with the service, but credit can be changed in 48 to 72 hours rather than the usual 30 days.

Credit Scores (aka FICO)

Credit scores are predictive indicators of a borrower's likelihood of repaying a credit obligation. They are weighted according to the following criteria (example below, can vary per reporting agency):

  1. 35% -- Major and minor delinquencies including late payments, collections, judgments, and bankruptcies.
  2. 30% --Amount of outstanding debt and balance to high-credit ratios.
  3. 15% -- Length of credit history (how long accounts have been open).
  4. 10% --Inquires or applications for new credit
  5. 10% Type of credit (revolving versus finance company credit).

Note - Information that is not considered in credit scoring includes race, religion, gender, marital status, borrower's address, wages, height, weight, or birthplace.
* There are four factor codes listed on a credit report, which point out the actions that are impacting your score. These are the areas you need to address to change a score.

How to Improve a Credit Score

Credit scores reflect a borrower's credit payment patterns over time with the most emphasis placed on recent information (24 months). There are some other strategies a potential borrower can employ that may have a positive effect on his/her score.

  1. Pay down the balances on revolving accounts. Credit scores are more negatively affected by delinquencies on revolving than installment credit. In addition, high outstanding balances on revolving accounts can have a major impact on the score. By reducing the balance, but not closing the account, the borrower will improve their balance/high credit rations and positively impact his/her score. If your balance one one account is more than 50% of the credit limit it may drag your score down. It will take the bureaus at least 45 to 60 days to reflect a lower balance. The credit bureaus can only change lower credit balances with time, not with any repair program. See how long it will take to payoff credit card balances. By paying more than the minimum payment requested your credit will improve quicker.
  2. Pay past due accounts current.
  3. Avoid credit surfing. This is the practice of shifting revolving credit balances from one card to another, usually to take advantage of low introductory interest rates. The combination of inquires and newly opened balances, especially since new balances will show on a credit report before old ones are reported as paid, can make a consumer appear to be in search of new credit.
  4. Avoid finance company credit. New credits in the form of cash loans from a finance company have more of a negative impact on a borrower's score than other installment or revolving debt. Borrowers should also avoid 90-day 12 months same-as-cash finance company transactions in the months preceding their loan application.
  5. Have erroneous information corrected or updated. Borrowers should pay particular attention to the accuracy of the credit history, such as the dates of last activity and/or delinquency, since recent information has the greatest impact on credit scoring.
  6. Avoid creating numerous inquires. Each  inquiry can lower your score.
  7. Have your scores corrected as soon as possible. Some useful links to visit are:

How to Erase Credit Inquiries

Alert - The credit bureaus are starting to stop the investigation of disputed inquiries. They are telling people via mail and phone that inquiries are just a "statement of fact". What rubbish! Don't take this lying down. The FCRA says that ANY information which is disputed on your credit report MUST be investigated. If they won't investigate, take their written letter to you as evidence they are breaking the law and  file a lawsuit in small claims to collect a slam-dunk $1000.

Every time you apply for credit and the credit grantor checks your credit report, a credit inquiry is placed on your file. Even if you receive a credit offer in the mail and you respond, your credit will almost certainly be checked and a credit inquiry will be added to your credit report.

Credit inquiries are bad because too many of them can indicate to a creditor that you're "credit hungry" and may be in financial trouble. Worse yet, the creditor has reason to believe that you received many of the credit lines that are showing as inquiries, and that many of those credit lines have not yet appeared on your credit report. Too many recent inquiries indicate to a potential credit grantor that your debt-to-income ratio may be much higher than you say. Most creditors disregard inquiries once they have been on your credit report for six months or more. This may not help your situation if you need credit right away or if you are applying to a creditor who looks at all of your inquiries. You may also want to read our section below on "how inquiries affect your credit score" based on the type of inquiry they are.

All credit inquiries should come off your credit report after two years. If you're not willing to wait, you may take these steps:

Step 1

First, find out which credit inquiries are getting in your way. Order all three of your credit reports. When your reports arrive, look toward the end of your credit report to find the inquiries. Some of the inquiries are only promotional and will not be shown to prospective credit grantors. You need not worry about those. Identify only the inquiries that are shown to credit grantors. You should recognize some of these as places where you applied for credit, but others may be a complete mystery to you and may be a reason for you to put a ID Fraud intercept on your SSN.

Step 2

Find the addresses for each credit inquirer. Your Experian credit report will list addresses for each. Your Trans Union and Equifax reports will not include addresses. Match your Experian with your Trans Union and Equifax reports. You should be able to use the same addresses on the inquirers that are listed on Experian. If some of the inquirers don't show up on Experian but do show up on either Trans Union or Equifax, you will have to call the credit bureau to get their address. It is almost impossible to get a live body on the telephone at Trans Union, but Equifax has an 800 number listed at the top of their reports. If you have a inquirer on your Trans Union and you can't reach Trans Union by phone, you might try calling the 800 directory (1-800-555-1212) and request the 800 number for the inquiring creditor.

Once you have collected all of the addresses for each inquiring creditor on each credit report, you are ready for step three.

Step 3

Prepare letters to each inquiring creditor asking them to remove their inquiry. The Fair Credit Reporting Act allows only authorized inquiries to appear on the consumer credit report. You must challenge whether the inquiring creditor had proper authorization to pull your credit file.

Step 4

Some of your creditors may provide documentation that a credit inquiry was authorized by you. Read the authorization that you signed very carefully. If there is any ambiguity, you can write back and argue that the inquirer's authorization form was too complicated and not easily understood by the layman. You can threaten to contact the State Banking Commission and complain about a deceptive and unclear authorization form if they don't remove your inquiry.

Some creditors will try to ignore your challenge. Be sure to send each letter Certified Mail Return Receipt Requested and keep close track of the time that you sent the letter. If the inquiring creditor doesn't respond within about thirty days, you will have ample grounds to call the inquiring creditor and demand some action. At that point, it's almost irrelevant whether or not you authorized the inquiry. Now the issue becomes the creditor's lack of response to a consumer dispute. Be sure to hold your ground. Demand that the inquiry be removed immediately or you will complain to the State Banking Commission or similar authorities.

Many of your inquiring creditors may simply agree to delete the inquiry as a courtesy or because they cannot (or will not) verify your authorization. That is the goal. Remember, it is not likely that you will need all of your credit inquiries removed -- just enough of them to keep you from being denied credit.

 

How Inquiries Affect your Credit Score 

Fair Isaac (FICO) is reluctant to give out specifics on how they calculate your credit score, but we will give you bits and pieces whenever possible.

Inquiries occur whenever your credit report is pulled. They are recorded on your credit report. However there are 2 kinds of inquiries:

  • Soft Inquiries occur when you pull your credit report or when one of your existing creditors pulls your credit report. Why would a creditor do this? They are checking to see how you are doing credit-wise to see if potential problems exist. Soft inquiries supposedly have no effect on your credit score.
  • Hard inquiries occur when your credit report is pulled as a result of your applying for new credit. These count against you.

So what if you apply all over town looking for a mortgage or auto loans? It used to be that the scoring system made no distinction with these inquiries, but so made people complained that Fair Isaac changed their scoring tactics for those who were just being good consumers by shopping around. According to Fair Isaac, all 3 Credit Reporting Agencies (Equifax, Experian, and Transunion) are now using the same program to calculate inquiries. Here are the exceptions made for auto loans and mortgage inquiries:

  • An inquiry buffer is in place and all AUTO and MORTGAGE inquiries within 30 days from Scoring are IGNORED.
  • AUTO and MORTGAGE inquiries in any 14 day period count as one inquiry, this is called de-duplication in the industry, like you really wanted to know that.

Of course, only if the auto and mortgage inquiries are indicated as such will they be scored correctly. How do we know that all lenders are going to do this properly? We don't. I haven't looked at a credit report and seen any information on it that would indicate what kinds of inquiries were on there. This information is hidden in the databases of the credit bureaus.

Need we say it? (We will anyways, of course.) All other credit card, charge card, cell phone, bank loan, insurance or any other credit inquiries that are not mortgage or auto related count separately.

To answer the exact question, how many inquiries are too many, we can't really tell you for sure, but obviously, you want to keep them to a minimum.

 

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