Learn What Affects Your Credit Score: Tips & Tricks to Increase It

Ever try to obtain a loan from your bank and wonder how credit bureaus establish your credit score, which can ultimately determine whether your bank will lend you money? It's not a little detail consumers should overlook. In fact, making even the slightest change in the number of credit cards you have and their balances, for example, could mean the difference between getting a really low loan rate versus a so-so rate.

Called your "FICO^® Score (the letters stand for Fair Isaac Corporation, a pioneer credit score company), it's your financial reputation in the form of a number on a scale from 350-850.  This number is what lenders use to decide whether lending money to you is a good risk, whether the loan you want is for a home mortgage, a car or credit card.  But what goes into computing that number? 

Your FICO^® Score comes from three national credit bureaus: Experian, Equifax and TransUnion, each with its own database. Reported information about an individual can differ from bureau to bureau which explains why your score may vary among vendors.  The chart below from www.myfico.com shows the five different categories of information credit bureaus use to calculate your score. 

As a branch manager and loan officer at Marquette Savings Bank, I help many customers obtain mortgage loans of all types. One of the most common questions I hear from them is if they are not late on making payments, why does their credit score sometimes fluctuate from one month to the next?  Here are a few reasons why.

Factors that can lower your credit score
- Your Credit Card Balance is too close to your limit.  Paying off your balance every month is your best bet for maximizing your credit score, but if you are going to carry a balance on your credit card, be sure to keep it under a 25% credit utilization.  Example:  If your card limit is $2000, keeping a balance under $500 may prevent your credit score from decreasing.   

- Have you moved and not notified all your creditors?

Don't forget to change your address with all of your creditors because a U.S. Postal Service Address change may not reach all of them.   Once you go beyond being 30 days late on a bill, you will receive a late mark on your credit report that will decrease your score.    

- Do you open a credit card with any store that gives you a percentage off?

Credit bureaus do not view opening multiple credit cards in a short period of time as responsible consumer behavior.  It is better to develop a good payment history with one or two credit cards, rather than have multiple cards with little to no history.  The same goes for shopping around for a loan.  Go to too many financial institutions, with each one pulling a credit report on you, and you'll likely see a decrease in your FICO^® Score. These are listed as inquiries on your credit report.

- Take note:  Paying off a collection account will not remove the account from your credit history.Paying a collection account or paying a debt for less than the amount owed does not remove that item from your credit report.  Your payment history stays with you for seven years.

Tips to improve your credit score

What other steps can consumers do to ensure their credit score is not adversely affected?  First and most importantly, work to pay all of your bills on time, every month, and apply for new credit wisely. Planning to apply for a home mortgage in the future? If so, plan to have at least three sources of credit that have been open and active for at least two years.  If you want to view your credit history, you can pull a report from each of the three vendors once per year for free by going to www.annualcreditreport.com.