HELP! Need to make FICO higher

[maps1350]

I"ll try and make this as short as possible. We are a young couple with four children. He has a great job that makes very good money. We have a savings, a 401K, and we keep to our budget. WE are also going to be investing in real estate and some stocks (on our own, apart from our 401K) in the next year. If nothing changes, this house we bought 8 months ago will be paid off in 9 years. we have no other debt.

THat being said. DH makes the money, so I"ll focus on him. His FICO 8 months ago, without the mortgage, with a few mistakes about previous debt, was at 580. We got into this house at 9.25%. We figured that after a year of making our payments on time, and allowing some time for the credit bureaus to fix the mistakes would hike his FICO up high enough to refinance and get a lower rate. (with todays rates, give or take, we'd be able to pay off the house in about 4 years).

Two weeks ago I pulled his credit, to get ready for a refi, and to make sure the credit agencies did what they needed to do. Well, the good news is his credit looks great...all mistakes taken care of, the last "late" or derog was more than two years ago, and the ones before that were more than four years ago. And our mortgage is on time. Problem? HIs FICO went down to and average of 515!

So, here we are, being penalized once again for not having credit card debt. Any advice would be helpful. WE're not quite sure where we're supposed to go from here, and other than a secured card, he doesn't quailfy for credit cards anyways. Furthermore, we REALLY don't want to go that route because while we might keep control for a few months, a few years, we just worry that sooner or later we'll end up financing soething that we have no business financing. And right now, with a clear head and no plastic, I can honestly tell you that there's NOTHING in the world I'd pay an average of 18% interest on. NOTHING! So, while we really don't want any credit cards, if that't eh only possibly way to get our interest rate for our mortgage down, we'll do what's needed.

Amazing...we pay our bills, act responsibly, work hard to stay in budget, and end up having to pay more on our mortgage and other things for deposits (since we can't be "trusted").

Thanks for listening,
April

[sweeps]

I'm a little puzzled why your score went down. Did you check all 3 credit reports for negative items?

The inconvenient truth is you must have and use credit to build up your credit score. If you never get a credit card and/or secured loans, the credit reporting agencies have no way to know how well you handle credit. A secured credit card is not a bad choice -- it works similar to a debit card in that the funds get pulled from a checking/savings account, but unlike a debit card it gives you credit history.

Your savings accounts and retirement accounts -- although very good things -- have no effect on your credit score.

[beebop25blue25]

The credit score probably went down because you now have the house and the amount owed as DEBT! Example, our Fico scores were in the high 600's, then when we bought our house, it went down to the low 600's. When I inquired about this, they state that it's the "new debt" of the house that brought the score down, but with time as the amount owed goes down your score will go back up! Make sense?? The scores are calculated by amount owed, not always by how many accounts you have open! If you go to myfico.com, it will explain all this to you better than I can i'm sure! Good Luck!!

[Hypersion]

Get a CC, charge a few thing on it every month and pay it off in full before the grace period ends.

This and time are the only things that will improve your credit score.

[InDebtInDC]

At the risk of sounding stupid, why do you need your FICO score to go up?


To those who suggest using credit to increase the FICO score: a) are you sure it will work, and b) are you sure this is the best way?


With all due respect, the couple already has a mortgage which means they're more leveraged than before. If you added credit card on top of that, even if you manage the credit card debt well, how will that affect their debt to income ratio?

Please be wary of the "overdependency on revolving credit" flag if you start using credit card and paying them off monthly.

My recommendation is to forget about your FICO score so long as your credit report from the 3 major bureaus are correct. Focus instead on increasing your income, managing your debt, and investing for your retirement. You may be surprised to find that those things may actually help you more than putting yourself into unnecessary debt. Anything else is just a waste of your resources.


Please be advised that the FICO score punishes the financially unstable as well as the financially responsible because companies tend not to profit from both customer profiles. Companies prefer the average consumer who messes up now and again. I would not worry about it.

[sweeps]

Originally Posted by InDebtInDC

At the risk of sounding stupid, why do you need your FICO score to go up?

Because first of all they're paying 3 full percentage points higher on their mortgage than the average person would. That's a lot of extra money going down the tubes every month.

Also your FICO is used for a lot more than attaining credit nowadays. A low credit score can cause you much higher insurance premiums and can prevent you from getting a job, just to name a few examples.

Originally Posted by InDebtInDC

To those who suggest using credit to increase the FICO score: a) are you sure it will work, and b) are you sure this is the best way?

Yes. The only legitimate way to build up your credit score is to acquire credit and make timely payments.

[InDebtInDC]

Originally Posted by sweeps

Because first of all they're paying 3 full percentage points higher on their mortgage than the average person would. That's a lot of extra money going down the tubes every month.

With all due respect, I don't think any of us is in a position to comment on what their mortgage rate should be given the fact that we do not have all the information necessary to make a credit decision.

Originally Posted by sweeps

Also your FICO is used for a lot more than attaining credit nowadays. A low credit score can cause you much higher insurance premiums and can prevent you from getting a job, just to name a few examples.

Respectfully, your FICO score is not used to determine insurability. Please see the following response from Fair Isaac to Congress' request for comments: http://www.ncua.gov/RegulationsOpini...-FairIsaac.pdf

Originally Posted by Fair Isaac

In addition to FICO® scores, Fair Isaac Credit Based Insurance Scores (“CBIS”) are used by insurers in underwriting or renewing personal lines insurance policies and in establishing rate tier. Fair Isaac develops bureau-based insurance scores based on auto and property insurance policy data and information in consumer credit bureau files. These scores are designed to predict the risk of auto or homeowner insurance loss ratio. The newest versions of our insurance scores are available at the three major credit bureaus as InScore® at Equifax, Fair Isaac Insurance Risk Score (formerly ASSIST) at TransUnion and as Experian/Fair Isaac Insurance Score at Experian through their partnership with ChoicePoint.

Your FICO score is used to determine consumer credit eligibility:

Originally Posted by Fair Isaac

FICO® scores are typically used in connection with credit eligibility determinations, including determination of interest rate, amount of credit to be extended and terms of repayment, and credit account review, including account monitoring and collections.

Although to be fair, some insurance companies have been known to be too cheap to actualy subscribe to the CBIS. Instead, they use the FICO as a cheap way to rate you.

Originally Posted by sweeps

Yes. The only legitimate way to build up your credit score is to acquire credit and make timely payments.

I respectfully disagree. How Your FICO Credit Score is Calculated - myFICO.com

Originally Posted by Fair Isaac

A FICO score takes into consideration all these categories of information, not just one or two.
No one piece of information or factor alone will determine your score.

The importance of any factor depends on the overall information in your credit report.
For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO score. Thus, it's impossible to say exactly how important any single factor is in determining your score - even the levels of importance shown here are for the general population, and will be different for different credit profiles. What's important is the mix of information, which varies from person to person, and for any one person over time.

Basically this is a cop out way of saying they're not giving you any information.

I would like to also make everyone aware that Fair Isaac has been issued several requests for information from various federal agencies in regards to their credit scoring algorithm. To date, no response that has been given that I've found to be satisfactory. The best info available is what's posted on their site as linked above. It's just general information that's available. I'd like to see the equations set up and analyse how the variables are calculated.

Therefore, in view of the evidence submitted above, I stand by my original statement. I further respectfully request you to cite your sources to back up your position.

[sweeps]

Originally Posted by InDebtInDC

Therefore, in view of the evidence submitted above, I stand by my original statement. I further respectfully request you to cite your sources to back up your position.

Quoting Fair Isaac to prove that FICOs are not misused is like quoting Philip Morris to prove that cigarettes aren't addictive.

Ok you want sources. Well, first of all I have AAA auto insurance and it says clear as day on my policy that my premiums have been lowered by X amount because of my high credit score. I would also encourage you to check your own policy and/or call your insurance company to ask if they use your credit score in determining your premium. But I assume that's not good enough so here are 3rd party sources...

BankRate

A consumer with bad credit is going to pay 20 to 50 percent more in auto insurance premiums than a person who has good credit. On the other hand, having sparkling credit could land you lower rates, so you should shop around if you've got a glowing credit report.

To factor in credit ratings, insurance companies use either the Fair, Isaacs & Co. (FICO) three-digit credit score alone; order an "insurance score" from FICO; or create their own, proprietary score using FICO credit scores or FICO insurance scores and adding in their own underwriting criteria.

The companies generally do not look at your actual credit report. Instead, it receives your credit score or your insurance score from one or more of the three major national credit repositories, Equifax, Experian and TransUnion.

Car Insurance Premium Questions - Credit Insurance Score Affects Car Insurance Price | Nationwide.com
Insurance Credit Score - How it will Change Your Insurance Quote and Insurance Policy
Our Company - FAQs - Credit-based Insurance Scoring
Need Credit or Insurance? Your Credit Score Helps Determine What You’ll Pay
» Five Reasons you Should Care About your Credit (FICO) Score*@*fivecentnickel.com
Improve Your Credit Score - Lexington Law Credit Report Repair

Please let me know if you need additional sources.

Regarding a few other points you made.
- The OP pointed out herself that she was forced to pay a high mortgage rate because of her poor credit score. Mortgage rate information is publicly and freely available. It currently stands on average around 6.25%. If OP is paying 9.25% she's paying approximately 3 percentage points higher than she would if she was a lower risk borrower. Is it exactly 3 percentage points? Maybe not, but if she improves her score she will most certainly qualify for a lower mortgage rate.
- You proved my point when trying to discredit me on my assertion that one must attain credit and make timely payments to improve one's credit score. All 5 factors listed at your linked site (payment history, amounts owed, length of credit history, new credit, types of credit used) require you to have loans or credit cards. No loans or credit cards, no improving your FICO, period.

[InDebtInDC]

Respectfully, please consider this no more than a thought exercise. I am not trying to discredit anybody, just their assertion.


The bottom line is we have no way of knowing how your credit score is calculated. If you do, please post the algorithm. I've been dying for years to see.

I would respectfully caution the OP in haphazardly taking credit just to try to improve the FICO score simply because you do not know how the credit score is actually calculated. You've already leveraged with the mortgage, and additional debt may or may not affect your score.

Secondly, most creditors do not simply consider your credit score devoid of your credit report and other factors. So trying to boost your credit score may actually worsen your credit worthiness in their eyes. We know they use the FICO and the credit report. We just don't know how. Trying to optimise an equation without knowing how that equation is calculated is not ideal.

Again, credit scoring is such a complicated equation that there is no way to know for sure what is considered and what is not.

The only way to refute my statement is to say A+B+C*D/E = FICO score, but as stated above, this equation is not available.


I've been after Fair Isaac for years to publish their credit scoring algorithms, but to date I have no legal instrument to force them to disclose their trade secrets. The thing that bothers me is that the FICO score affects everybody, but nobody knows how it's calculated. I don't think this is fair, and Congress hasn't done enough to shed light on this issue IMHO.

I've worked at a major auto insurance carrier and I currently work as an expert witness for an organization (both of which shall remain nameless for their protection). I've been commissioned to probe Fair Isaac and the insurance industry in general to get them to disclose their consumer credit rating methods. So far I've been unsuccessful because legally they are not obligated to comply under the guise of protected trade secrets. I've begged. I've pleaded. I've threatened. I've brought forth legal action. Nothing.

If I should somehow be successful in my inquiry, please be assured that it will be shared here. I have some stuff in the works that will force them to show their cards, but it will take a long time.


It's a black box that you put consumer data into and spits out a number. The inner working of the blackbox is unknown and changes constantly. It should really be a white box for all of our sakes.

[sweeps]

I agree with you. No one outside Fair Isaac knows the precise formula that determines your credit score. And the expanded uses of FICO beyond attaining credit are very questionable. But the original question was whether there was a way to boost a credit score without getting a credit card (or other loan). Based on the general information provided by Fair Isaac, the answer is a definitive no.

(Note previously you could get an immediate FICO boost by piggybacking on someone else's credit by becoming an "authorized user". A market even sprung up around this loophole where people could pay to become authorized users. That loophole has since been closed. If there are other loopholes out there, please let me know, I'm not aware of them.)

[InDebtInDC]

Originally Posted by sweeps

I agree with you. No one outside Fair Isaac knows the precise formula that determines your credit score. And the expanded uses of FICO beyond attaining credit are very questionable. But the original question was whether there was a way to boost a credit score without getting a credit card (or other loan). Based on the general information provided by Fair Isaac, the answer is a definitive no.

(Note previously you could get an immediate FICO boost by piggybacking on someone else's credit by becoming an "authorized user". A market even sprung up around this loophole where people could pay to become authorized users. That loophole has since been closed. If there are other loopholes out there, please let me know, I'm not aware of them.)

I'm glad we're agreeing. I still stand by my original statement that trying to boost your FICO may actually worsen your credit profile since we have no idea what's being used to calculate credit worthiness. The FICO score is simply one of a plurality of metrics used.

Here's the question I put forth. I'm questioning if a higher FICO score will indeed help lower the mortgage rate, or if a reduction in debt and increase in income will do more to lower the rate, given the fact that income is not part of the FICO score (supposedly)?


We can certainly make statistical inferences by passing multiple scenarios through the black box, but it's difficult enough to make statistically significant inferences with just a few random variables. With the FICO you have hundreds if not thousands of variables. Plus on top of that you add in time variances as they change your algorithm over time.

[sweeps]

Your point is well-taken, and I've complained about this as well. If this magical FICO score is being used for so many critical financial decisions, people have a right to know the exact cause-and-effect of their actions.

Having said that, protesting against Fair Isaac by letting your score go to s--t is not a smart move. Their general guidelines state that your score is based on those 5 factors, all of which require you to have and use credit. If you choose to avoid credit, as twisted as it may seem, you will suffer the consequences.

Dave Ramsey allegedly once said he was proud to have a 0 FICO score. That is financial suicide -- at least for anyone who doesn't make millions from giving poor advice.

[vsjhoc]

Originally Posted by InDebtInDC

Here's the question I put forth. I'm questioning if a higher FICO score will indeed help lower the mortgage rate, or if a reduction in debt and increase in income will do more to lower the rate, given the fact that income is not part of the FICO score (supposedly)?

If you go to Fair Isaac's website and spend some time in the "FICO Forums," there is quite a lot of useful, detailed information available. See the "frequently requested threads" at the top.

To answer your question, a higher FICO score can help lower your mortgage rate. And so can a reduction of debt and increase in income. A lender considers these factors and more. So you really can't say that one or the other will do the most good. Plus, different lenders have different priorities. For example, auto finance companies put a lot more weight on your past auto finance debt behavior than a mortgage lender does.

The reduction of debt helps both ways; it can increase your FICO score by lowering your utilization of available credit, and you may qualify for a better mortgage rate if your debt-to-income ratio improves. As for salary, as far as we know it is not part of the FICO score, but a potential lender looks at debt-to-income and also considers how much your mortgage payment would be relative to your monthly income.

Hope this helps.

[vsjhoc]

Originally Posted by sweeps

(Note previously you could get an immediate FICO boost by piggybacking on someone else's credit by becoming an "authorized user". A market even sprung up around this loophole where people could pay to become authorized users. That loophole has since been closed.

This loophole (being an authorized user) is still open. It is scheduled to be closed with respect to one (un-named) credit bureau by the end of the year but it could be available for longer.

[Ima saver]

Well, I agree with the person that said, get a credit card, charge a few small things each month and pay it off in full each month. That should start raising your credit score.

[sweeps]

Originally Posted by vsjhoc

This loophole (being an authorized user) is still open. It is scheduled to be closed with respect to one (un-named) credit bureau by the end of the year but it could be available for longer.

Ok, thanks for the clarification.

Well, OP, there you go. Ride the coattails of someone with good credit and you'll instantly bump up your score.

[maps1350]

Well, I've had my DH home for the last few weeks and haven't been on the puter (he works on a boat). Very interesting to come back to see the resulting conversations!

We don't believe in debt. Period. However, because one upon a time credit became more and more available, and people relied more and more on debt, inflation grew and therefore, people would now be hard pressed to save up for a house in a LIFETIME of saving. And while we see that there might be a need for a good FICO score here and there, we also don't understand why businesses we work with refuse to look into our financial history further than gross income, assets, and FICO score (sometimes they'll actually look at the report...but that's typically just the large lenders.....what frustrates us more than anything is the utility companies and etc.....heaven forbid they call our last company and ask if we've been paying our bills on time for the last...ooohhhh....8 years, longer than we've been adults at any rate ).

We don't have a problem necessarily leveraging ourselves when needed. But our financial goal is to get my DH off the boats and home where we can have the freedom to work together in whatever we may choose.....something that maybe won't make him be gone from me 8 months a year would be great! lol

Unless he goes deep sea, he won't be making any more money (with the exception of the market going up occasionally and us getting pay raises that way). He's a chief engineer and won't ever move any higher up the ladder. BUt, needless to say, he makes a very good income. However, I must say that other than making sure you're debt to income ratio isn't over 28% + - ....companies don't put too much stock into what you make when lending. Remember, this is the age of the interest only loans! No one cares what you make or what your history is with your money...as long as you can "make" the minimum monthly payments.

Our interest is high for the time period we bought. It could've been 2.5-3 points lower. Here's the reason for wanting our score higher, or our mortgage lower. We have currently 5500 a month that we put towards our mortgage. Right now, our mortgage, without ins and taxes, is 2150, of which 100 is going to principle this year. If we get a better rate...more or less prime....our payments would come down to about 1400-1500...which is an additional 600-700 a month we could put towards prinicple....or include our taxes and ins and not have to worry about those (which come out to about 600-700/month).

THis isn't in the interest of getting more debt or staying in debt. The whole point of us buying this house and paying on it like we have been and wanting to refi is to pay it off ASAP and move on with our freer lives.

April

[cschin4]

we pay our bills, act responsibly, work hard to stay in budget,

If you do the above, why do you care about your FICO other than for your home mortgage?
I couldn't care less what my score was. I only buy and live within my means. And, at age 40+ I only recently found out my score.
Live within your means, pay off your debts. Don't use CC's unless you can pay them in full at the end of the month. Save and plan.
Do this and you won't be held hostage by any score.

However, if you think there is some mistake than look into it. Otherwise, forget about it.

[BabyBear]

I agree that you DON'T need a cc. I don't have one....never had one.

I just bought a house last year with a 6.xxx% interest rate (can't remember exact amount). I had one very small student loan (paid off many years ago) and bought two trucks (the first used, the other brand new) also both paid off many years ago.

I contribute to my retirement and throw as much as possible in to savings. If I need/want something, I can pull the money from savings. That is true of new clothes, new furniture, a new fridge, or a car. (No more brand new for me--used is just fine!) If I need it, it's in savings.

I've been trying to throw an extra $20 or so on to my mortgage each month, too. That is going to knock a few thousand dollars off of interest as well as cut the payments down a few years.

I use cash for groceries, gas and a few other small things. I have no need for a credit card.