There is an unprecedented opportunity to restore your credit score and minimize the impact of the errors of the past. FICO, the creator of the credit score used by the vast majority of lenders, seems to have revised their formula to put less emphasis on the past and more on the present. This means that credit repair efforts made today may be surprisingly effective. If you aspire for better scores, act now.
Rocket Booster for Your FICO Score
One of the most powerful things you can do to boost your score is to open new accounts after the date of your last derogatory event. FICO puts major positive weight on new accounts (managed properly) with post-derogatory open dates. The logic is that you are showing your ability to get back up on the credit horse and ride again! A bit of advice, do not imagine that your old accounts are good enough to do the job just because you have brought them current. Open a couple of new accounts today and show that you are back in the game.
Rebound from Bankruptcy
How many people file for bankruptcy and then stick their head in the sand for years, believing their credit life is over? On the contrary! As far as your credit score is concerned bankruptcy really is a fresh start. Once your bankruptcy is discharged, clean up all of the errors on your credit report (or hire a credit repair company), rebuild your credit following the advice in the paragraph above, and watch your scores bounce back. Take the right steps and your post-bankruptcy scores can be over 700 within a year.
Recover from Foreclosure
Another new and exciting FICO behavior we are seeing is the speedy disregard of isolated negative events. Consumers with otherwise good credit now find that even major derogatory issues, like foreclosures, are forgiven within a year. For FICO forgiveness the derogatory issue must be resolved and cannot continue to show a past due balance, so once you wrap up your foreclosure, check your credit report to insure the lender is reporting properly!
What is Happening?
To shine a little light on the issue, there is good reason for FICO to be moderating their algorithm to favor forgiveness and reward good behavior. In fact, FICO is entirely statistically based and simply reflects the changing relationship between consumer credit and default rates. The recent formula adjustments are not intentionally charitable, but merely indicate that the positive correlation between past derogatory credit and default is decreasing. In fact, credit default nationwide is decreasing apace, thereby driving FICO to reduce risk measurements accordingly.
A Word of Warning
In spite of all of the clear signals that FICO is paving the way for consumers to recover their credit score pride, there is still one area in which they are resolutely inflexible. High credit card balances can still kill your credit score. If your credit card is reported to the bureaus with a balance in excess of 60 percent of the available line, you will lose points. How many points? A credit card balance in excess of 80 percent of the account limit can knock 100 points off your score. The less you use, the less the impact, but do not get caught by surprise when you need your score to be good.
Clean Up Your Credit Report
In spite of all of these new opportunities, if your credit report is loaded with erroneous accounts, duplicate collections, or any type of misreported information, all of your good efforts may be in vain. Now is the time for credit repair. Check your reports super carefully. Do not miss a single thing; just because an item is small does not mean it is not killing your score. And remain vigilant. Credit reports have errors and they do not fix themselves. Need help? Give a call.