Getting into the Spirit
Once you embark on your credit repair journey it is helpful to understand the spirit of the FICO scoring model. Your FICO score is not a report card; it is a predictive model designed to measure the likelihood that you will default on your obligations. Some of the factors FICO considers in its calculation make perfect sense, but others may take you by surprise. Here are some insights that can serve your credit repair effort.
When you apply for new credit your scores will dip slightly. FICO lowers your score for each inquiry because it sees your shopping (and possible new debt) as a potential threat to your budget.
New accounts put a significant, but temporary, dent in your credit repair progress. FICO sees a new account as an untested risk. The impact on your credit score will fade once you demonstrate that you can manage the new debt responsibly.
High revolving balances may be an indication of financial stress. Hence FICO will lower your scores to warn potential lenders that it may not be the right time to lend you money. Conversely, low balances send a signal to FICO to boost your scores and give lenders a green light.
Consumer debt includes store cards and financing typically used for the purchase of furniture and electronics. FICO carries an automatic bias against this type of debt; we attribute this to the fact that it is often pricey and may include a no-payment option that will mature into a precarious repayment plan after a fixed term.
Active vs. Inactive Accounts
Inactive accounts with zero balances have diminished score value. FICO recognizes that many credit cards get retired, both by consumers and creditors, and yet continue to report. For the best credit repair results keep your balances low, but maintain some level of activity on the card.