What makes up the FICO score

Something very important I have learned over the last few weeks of reading and researching is how exactly your FICO score is calculated.  Knowing this can help you to work on the most important parts of your credit to get the fastest results, and later what you need to do to tweak things and get an even higher score when all things are positive.

Here is what makes up the FICO score, and how many points it adds.

You start at 350 points

35% (or 175 points) is 'payment history'

30% (or 150 points) is 'amounts owed'

15% (or 75 points) is 'length of credit history'

10% (or 50 points) is 'new credit'

10% (or 50 points) is 'types of credit'

Total - 100% or 500 points

Lets break this down:

Payment History counts as 35% of your score.  Any 30, 60, 90 day lates or charge offs will erode that 35% very quickly.  You want to make sure that payment history is clean and clear.  The longer time goes since a bad payment history makes it effect your score less, but it still effects it heavily.  If you have 30, 60, and 90 day late payments on an account you will want to send a "goodwill letter" asking the company to remove these late payments out of the kindness of their hearts.  It does not always work, but its worth a try.  Any charge offs you have you want to settle so that the account shows "paid in full" or "paid and closed".  When settling this charge off debt you want to contract with the company so they either remove the whole trade line or at least make sure the account shows correctly and the history is clean.

Amount Owed counts as 30% of your score.  This does not mean that if you have a million dollars in debt you will have a bad score.  It is all relative of how much your credit limits are.  For installment accounts and revolving accounts the closest your totals owed are to 10% of your available credit the better.  In fact if you can get your totals between 0-10% you will score the highest in this category.

Length of credit history counts as 15% of your score.  This means the average age of your accounts.  So if you have one credit card for 20 years, and 2 new ones less than a year, they are going to take the average, or 6.6 years, as your average account age.  The longer the better.  So do not be surprised if you open a new credit card, or buy a new car, and find your score drops.

New credit and inquiries count as 10% of your score.  Having tons of inquiries with no new credit will effect you negatively.  The good news is that if you try to get a loan for a car or home, and your credit is shopped around a lot, as long as its within a short period of time all of those inquiries will only count as one inquiry.  But if you apply for a bunch of store or credit cards trying to get credit you could be lowering your score by a lot.  Your best bet is to get a copy of your latest credit report and FICO scores before applying for any credit and take that into where you will be applying.  Most places can give you a "soft approval" based on that without pulling your credit, allowing you to have an answer before officially pulling your credit.

Types of credit counts for 10% of your score.  The FICO system wants to see variety.  They want to see you can handle responsibility over a wide variety of accounts.  To maximize this you should have a revolving account (credit card with a limit), an installment loan (initial balance paid off a little each month), a mortgage note, and a car note.

Maximizing every aspect of these sections will help to give you a score in the high 700's or more.

PLAN: January 2010

The plan for this month is to get all of the small accounts in some sort of contracted payment situation so they will be removed from our credit completely after being paid in full.  We are sending out letters to 1-10 of the creditors in the snapshot for January asking them to send us a signed agreement to remove their trade lines from our reports in exchange for payment.  This has been a successful technique for many people and we are hoping it will work well for us.

It does not remove a large portion of debt, only about $1500 or so.  But it removes a large number of accounts.  In fact it removes almost half of the negative accounts on our credit.  This will be a good start to all of this.  Once these are done we will focus on the next steps.  We hope to have agreements in hand by the end of January but that depends on how fast they respond to us.  We give them a time limit of ten working days to respond in order for our offer to be valid.

Next month:  We plan to open secured cards, as well as deal with any remaining accounts that have not responded to the initial payment agreements we are sending out.

SNAPSHOT: The Beginning

So lets begin by posting the bad stuff we have on our credit.  This list is a combination of both our reports.  Some are on both, but for the most part half is his and half is hers.  For privacy reasons I will not disclose which is which, along with the account numbers associated with these companies.  I will be posting snapshots each month to show where our scores are, as well as what baddies we have and what good trade lines we have developed or kept.

BADDIES:

	Company Owed	Expected Removal	$$$ Owed
1	United Compucredit	4/1/2012	$67.00
2	Absolute Collect Svc	8/1/2013	$75.00
3	MAF Collection Services	1/1/2014	$100.00
4	Gulf Coast Collection	4/1/2014	$100.00
5	AFNI	4/1/2012	$158.00
6	Enhanced Recovery Corp	5/1/2014	$171.00
7	AFNI	12/1/2012	$199.00
8	Certified Recovery System	5/1/2011	$305.00
9	BCA Financial Services	9/1/2015	$397.00
10	CCS/First National Bank	5/1/2011	$455.00
11	AFNI	6/1/2010	$781.00
12	Creative Recovery Concepts	7/1/2010	$9,538.00
13	Midland Credit Management	10/1/2010	$750.00
14	AFNI	6/1/2011	$773.00
15	IQ Data International	6/1/2011	$15,943.00
16	Santander Consumer USA	3/1/2015	$5,851.00
17	Consumer Portfolio Services	5/1/2015	$11,609.00
18	Verizon	7/1/2015	$2,023.00
19	Verizon	1/1/2015	$1,011.00
20	Financial Credit Services	11/1/2014	$503.00
21	American Profit Recovery	10/1/2014	$810.00
22	Continental Finance	1/1/2014	$556.00
23	MG Credit	11/1/2013	$1,055.00
24	First Premier Bank	5/1/2012	$507.00
25	Arrow Financial Service	5/1/2012	$701.00
26	Credit Management	4/1/2012	$972.00

SCORES:

These scores are as of 2 years ago.  I have been able to pull our most recent credit reports, but not our current FICO scores.  I will be updating these soon in a new snapshot. 

Hers: TransUnion-525 Experian-504 Equifax-524

His: TransUnion-571 Experian-533 Equifax-527

GOOD TRADE LINES:

Several Student Loans - paid and closed

Old Kent Home Loan - paid and closed

GOALS FOR NEXT MONTH:

We want to have deals worked out with accounts 1-10 to have them deleted if paid in full.  We have the money ready to do this and want to see these gone asap.  It will be half of the accounts on our credit and will remove a lot of negative items.