Essential for Credit Repair Success
Fair Isaac attributes 30% weight to the “Amount Owed” category, and the proper use of these guidelines can make your credit repair results shine.
Focus on Revolving Accounts
You may have balances on installment accounts, but the major FICO consideration in the “Amounts Owned” category is revolving accounts, the most prevalent of which are credit cards.
Installment accounts and their balances matter, and we will discuss the contribution they can make to your credit scores in the “Types of Credit Used” category in a moment, but generally speaking you will make scheduled payments on your auto loans and mortgages. Accelerating payments on a sizable loan like a mortgage or auto loan is usually not a practical option, nor will it give you the same benefit as managing your revolving accounts properly.
A Very Sensitive Relationship
FICO is extremely sensitive to the relationship between the balances on your revolving accounts and their limits. And the recent update to the FICO software known as FICO ’08 increased the importance further. It is imperative to your credit repair success that you understand the importance of this issue.
Understanding the Math
The higher your balances, the lower your scores will be. If you max out a credit card, or go over your limit, your scores will fall dramatically, possibly more than 100 points depending on the overall content of your reports. Conversely, the lower your balances the higher your scores will be. FICO currently will give you the best results if you utilize less than 20 percent of an account. For example, if you have a card with a $1,000 limit you should reduce the balance to less than $200.
No Residual Damage
If you have maxed out an account don’t worry. Pay it down when you can and your scores will pop right back up. There is no residual damage to your scores from having had high balances in the past.
Next: Account Age and History