How can you improve your score the fastest? Do mortgage inquiries count against your credit score? Jim Kemish, who is an expert on credit repair, answers these and other questions.
How important your credit score is
The interest rate you pay on everything from your credit cards to your mortgage will depend on your credit score. No other single piece of information has such a big effect on your life. Nothing is as important as credit scores, but most people don't understand them. Here are answers to some of the questions we get asked most often.
When did the scoring of credit start?
In the 1950s, engineer Bill Fair and mathematician Earl Isaac at Stanford University came up with the first version of what is now called the FICO score. The FICO score from Fair, Isaac & Company is now the most used credit score in the world. Automated FICO scores were first made available in 1989. At first, credit card companies were the only ones who used them. Fannie Mae and Freddie Mac, two of the biggest names in the secondary mortgage market, suggested for the first time in 1995 that all lenders check the credit scores of all borrowers. What happened next is history.
Why Are There Three Different Scores?
There are three main credit reporting agencies. Experian, Equifax, and TransUnion are their names. Each of the three credit bureaus uses the same FICO scoring model, but each has changed the name of the score for its own marketing purposes. There are three things that make your scores different. First, not all creditors report to all three bureaus. If you look at your three reports, you'll probably find that they have different information in them. Second, each bureau adds information at a different time. If you recently used a credit card, for example, each bureau is likely to report your new balance at a different time. Third, Fair, Isaac & Company makes changes to the software from time to time, but not all of the bureaus update at the same time.
How to improve your score the fastest
There are two things that can make things happen very quickly. The first is paying down the balances that are still owed. If you choose this option, you should know that there is a way to do it that will give you the best result. You should pay down the balances on your revolving accounts before you do anything else. And when you pay down your revolving balances, you should try to get each balance to 50 percent of your high credit limit. As a person who helps people fix their credit, I recommend this method all the time, and I can vouch for how quickly and dramatically it works.
A Method That's Not Popular
There is a second quick way to get better scores. If you have a friend or family member with good credit, ask them if you can be added as a card member to one of their accounts. It's important that their credit is good and that the account in question has been open for a long time. In a short time, the value of your benefactor's credit card will be added to your credit score.
A Note from Me
From my own point of view, I have mixed feelings about this. Clearly, the credit score you get from a benefactor is not a sign of how good your own credit is. On the other hand, I think everyone should have as many chances as possible to build their own credit. I think this is a bug in the system or a loophole because I can't figure out why the FICO model treats additional card members so strangely.
Do my inquiries about a mortgage and a car count against me?
This seems to be a common question in the business of fixing credit, and for good reason. If you want to buy a new car or get a mortgage, you should be able to shop around at different car dealers or mortgage lenders. Most of the time, they will need to check your credit to figure out what your interest rate will be. Multiple inquiries should not count against you. This is taken into account by the FICO scoring method.
Permission to shop around
So that people can shop around, the FICO model ignores all mortgage and car inquiries made in the last 30 days. In other words, you can get as many inquiries as you want in a 30-day period, and they will all be ignored, at least until the 30-day period is over. Once the 30 days have passed, FICO adds up all the inquiries that happened in the 45 days before to make your score. I don't know why FICO stopped looking at the last 30 days of shopping and started looking at the last 45 days, but that's the way it is. Aside from that, I should say that this rule is very new. Instead of giving you 45 days to shop around, the old FICO model only gave you 14 days.
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