Making sense of the story
- First, it is worth noting that median credit scores are rising, as people reduce debt and spend less in tight economic times. Some 18 percent of Americans now have scores of 800 to 850, while 15 percent are below 550, according to FICO data.
- Often lenders will review FICO scores from the three big credit agencies, and they use the middle number to evaluate the borrower. That number becomes the borrower’s “risk number.”
- Borrowers can figure out their risk number by obtaining their three credit reports, available free once a year at AnnualCreditReport.com, and studying them carefully for errors or omissions.
- According to FICO, the two biggest factors in a credit score are payment history, which accounts for 35 percent of the score, and the amounts owed, accounting for 30 percent.
- Knowing that information, one can raise his/her credit score by reducing balances on credit cards. However, if an account is in collection, it is too late to improve the credit score by paying it off. The notation that an account is in collection is what lowers the score, so consumers may get more mileage by paying down active credit-card balances and other debts first.
- Though mistakes and bankruptcies may stay on a credit report for seven years, lenders will generally be more likely to overlook late payments that happened two or more years ago than more recent ones.
- Improving one’s credit score could take three to four months, or it could take as long as 18 months.