Once you have colored your credit report by dates to identify which accounts have had activity and reported in the last 24 months, FICO factors in 5 things in the algorithm to produce a score based on those accounts. See below.
1. 35% Payment history-are bills paid on time? Collections reporting?
(If you have a late reporting on an account, call and request a “goodwill removal” of the late and if a collection is reporting in the last 24 months, call and request them to delete it, if you agree to pay it or provide documentation you don’t owe it. Get it in writing. Record your call.)
2. 30% Credit Utilization -the amount reported once a month by credit cards as a balance versus the limit on the card. (Keep the balance between 5-19% of the limit for optimal results.)
3. 15% Length of history-takes into account the date opened for all accounts open or closed but with a balance. (That’s why when you close an account you opened in 1953 and have used in the last 24 months, your credit score drops! You just lost all that time since it was opened.)
4. 10% Account diversity- do you have a mix of revolving accounts, installment accounts, auto and/or mortgage? (Just remember you want 2-3 revolving accounts because that is used in 30% of the score algorithm. Revolving are credit cards. Installment loans have a set payment every month for a specific term. Mortgages and Auto are other types of accounts factored in.)
5. 10% New accounts or Inquiries.-don’t apply for new accounts unless you are sure you will be approved and make sure to check your report on www.annualcreditreport.com to make sure the inquiries were approved by you.
Remember this and you will always know the rules of the game!