THE BLOG
08/04/2011 03:45 pm ET

Understanding & Improving Your Credit FICO Score

Last week I did a Webinar for MasterCard and I wanted to share what we reviewed with the participants and some questions I was asked. I am thrilled that MasterCard is providing these webinars to help their customers with healthy credit education. Many people have commented on how they have realized that they have been doing things that have been hurting their credit without even knowing it and how, with the knowledge they had acquired, they would be making wiser credit decision. That is what I want for all of you.

Do you think there is a difference between your FICO score and a credit score? The answer is YES. Many people do not know the correct answer to that question. We have to begin by understanding that most lenders look at your FICO score to decline or approve you. If you are approved then they can base your interest rate on your FICO score. This is a very important number to know and track!

5 Parts of FICO to help you get the most of your score:
  • 35% Payment History
  • 30% Amounts Owed
  • 15% Length of Credit History
  • 10% New Credit
  • 10% Types of Credit Used
Payment History is the largest percentage of your FICO score. It's basically a log of how you've paid on your accounts in the past. It will report payments paid on time, late payments, collection accounts and any public records.

Amounts Owed accounts for the second largest part of your score, listing how much you owe on specific accounts, how many accounts have a balance, what proportion of credit lines have been used, and what proportion of installment loan amounts are still outstanding.

Length of Credit History, New Credit & Types of Credit make up the remaining percentage of your score. FICO wants to see time on your side, the number of accounts in variation, what types of new inquires and new accounts have recently hit your report, and, if you've had problems in the past, recent signs of healthy credit.

How to make the best of your credit

The best scores are made from the right mix of a payment history free of collections and late payments, low balances and newly rebuilt credit. Don't forget to add in different types of credit and keep the relationship open for a long time.

Some questions I was asked:

Q: If I use my debit card will that show on my credit report?
A: No, this is not a line of credit.

Q: If I pay my tax lien and it gets released, does that mean it comes off my report?
A: No, released shows the credit bureaus that it is paid. If you want a lien removed from your report you have to get a vacate. This would mean there was an error or dispute. A vacated lien means it will be removed from your reports.

Q: If my credit cards have high balances and I pay them down to 20% will this help my score & how long will it take to update them?
A: Yes, this will raise your score significantly! It can take 30 to 60 days to have the balances updated. If you need this done faster, get the creditors to send you a balance letter then send the balance letter (s) to the bureaus directly and they should update them for you within 5 business days.

Please share any of your thoughts or questions with me via email at Jeanne.Kelly@TheCreditOwl.com