1. FICO Credit Scores and Increasing Your Creditworthiness
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How to Increase a Credit Score
Credit scores are one of the largest factors that lenders use in
evaluating whether or not to lend money to a borrower. Credit
scores are designed to measure the risk of someone defaulting by
taking into account various factors in a person’s financial history.
If you are considering purchasing a Massachusetts home one of
the things you want to be sure of is the accuracy of your credit
report. The economic down turn of the last five years has vastly
changed the mortgage landscape all across the country.
If you ask any mortgage broker they will tell you that things have
changed in the mortgage industry on a monthly basis. Given the
increase in foreclosures and short sales lenders have increased
their standards when evaluating the potential for default of every
borrower.
One of the tools that lenders use to evaluate the borrower to repay a loan is what’s know as their FICO score. The FICO
score was developed by the Fair Issac Corporation. The company was founded in 1956 and their scoring programs are
often used to assist lenders in managing credit accounts, detecting credit fraud and automating lending decisions. The
FICO score is a standardized approach that helps lenders deliver decisions on loans in an efficient manner.
FICO scores can range from 300 to 850 with 850 being the maximum possible score. According to the FICO scoring
system there are five factors that determine a borrowers score. Using these guidelines can help you improve a credit
score!
35% — A borrowers payment history carries the most weight – Late payments on bills including a
mortgage, credit card or automobile loan, can cause a consumer’s FICO score to go down. Paying your bills
according to the contract you signed will over time help improve a consumer’s FICO score.
30% — The borrowers credit utilization – The ratio of current outstanding debts such as credit card balances
to the total available revolving credit ( your credit limit). You can improve your FICO score by paying off debts
and lowering your utilization ratio. The closing of existing revolving accounts will typically adversely affect this
ratio and therefore have a negative impact on your FICO score.
15% — The length of credit history – As your credit history gets longer, assuming you pay your bills on time, it
can have a positive impact on your FICO score.
10% — The types of credit used (installment, revolving, or consumer finance) – There is some credit
given to having a history of managing different types of credit.
10% — A recent search for credit or amount of credit obtained recently- If you have multiple credit
inquiries as a consumer seeking to open new credit, such as credit cards, retail store accounts, or personal
loans, it can hurt an your score. Applying for lots of new credit in a short period of time is also viewed as risky and
can cause a drop in an individual’s score. What should be noted however is that if you are shopping for a
mortgage or auto loan over a short period of time you should not experience a decrease in your scores as a
result of these types of inquiries. So if you are buying a home and apply to multiple lenders and they all do their
credit checks you are not supposed to be penalized.
FICO scores do not take into account a borrowers salary, employment history, where they work, rental
agreements, child support or other such obligations or interest rates on any current loans.

2. agreements, child support or other such obligations or interest rates on any current loans.
Generally speaking a credit score that is over 720 is often considered an excellent credit score. A score of 680 – 719 is
considered good. A score that falls between the range of 620-679 will usually make the lender scrutinize the file further.
Having a score that falls between 585-619 will typically disqualify you from getting the best rates. A score below 584 will
make many lenders question whether or not they want to do business with you.
There are actually three companies that report credit scores to lenders. They are Equifax, Experion and Transunion.
The scoring of these agencies can often vary quite a bit. Each of the bureaus collects different information on the
borrowers which can change the final score. Given how the credit scores can differ from the various agencies if you are
falling on the edge of one of the credit ranges it may be prudent to apply to more than one lender. For example if you
had a score of 675 at one agency it is quite possible you could be 700 somewhere else which could give you a better
rate! It should be noted that the credit scoring model was slightly altered in 2009 and could effect your score either up or
down by 20 points.
In the new model credit problems and issues will be ranked according to number and magnitude more specifically than
before. The new FICO scoring system also focuses less on how many accounts a borrower has and more on the
amount of balances carried.
The statistical models that are used for generating credit scores are subject to federal regulation. The Federal Reserve
Board’s Regulation B (implementing the Equal Credit Opportunity Act), expressly prohibits a credit-scoring model
considering “prohibited biases” such as race, national origin, sex, religion and marital status. The law also states that
credit-scoring models must be empirical and statistically sound. In addition, if a borrower is denied a loan based on
credit, the lender must state to the specific reasons for the denial. A statement that the person did not score high enough
is not acceptable. Thee reasons for denial must be specific. For example there were too many late payments of 60
days or longer.
So how does one go about improving their credit score to get the best rates that lenders offer? The
answers are actually pretty simple!
Pay all of your bills on time every month.
Pay off all of your existing debt.
Unused credit cards should not be closed. This can sometimes
lower your credit score.
Do not open a bunch of new credit card accounts in a short period
of time.
A few years ago it was not uncommon to hear of mortgage brokers or
credit repair companies doing what was known as “doctoring” a
persons credit.
A major portion of the FICO credit score is set by the ratio of credit
used to credit limit. What was happening was they would increase the
score by simply increasing your credit limit. Some of the credit-repair
agencies, for a fee, would report to the credit bureaus that they have
opened an account with a high credit limit. The customer could not
actually use this account but it would improve the customer’s FICO
credit score due to lowering the balance-to-credit-limit ratio. This is no longer allowed!
When you are starting your home search and getting your pre-approval from a lender one of the other things you should
do is get a copy of your credit report from each of the three report bureaus. As a consumer you are allowed to get one
free credit report each year from Equifax, Experion and TransUnion.
With this knowledge is hand you should be well armed to position yourself for the best mortgage rate possible and
increasing your credit score!
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About the author: The above Real Estate information on How to improve a credit score was provided by Bill

3. Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by
phone at 508-435-5356. Bill has helped people move in and out ofmany Metrowest towns for the last 24+ Years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland,
Holliston, Mendon, Hopedale, Medway, Franklin, Framingham, Upton, Grafton, Northbridge, Shrewsbury,
Northboro, Bellingham, Uxbridge, and Douglas.