Even if it is just a few days late, just one overdue payment-whether it’s for your mortgage, a utility bill, an auto loan, a Visa account, or any of a hundred other credit obligations-could seriously damage your FICO score. FICO pays a lot of attention to whether you start a pattern of missing due dates, so a series of late payments can really hurt your score.
It’s not too late to straighten up your act. Get yourself current as quickly as you can and then remain current. Your score will begin to increase within six months- and the longer you keep it up, the more noticeable the increase will be. The negative weight FICO gives to bad behavior like delinquencies lessens over time, so as long as you stay on the right path, those black marks will eventually disappear from your record for good.
Of all the factors you are able to control-and improve quickly-the amount you owe is probably the most powerful. Say you’ve got a $1,000 balance on card with a $2,000 credit limit-and then the card company slashes your limit to $1,000. Suddenly, you’ve gone from 50% credit utilization to being maxed out, and being maxed out might cost you as much as 100 points.
Closing old accounts shortens your credit history and reduces your total credit-neither of which is good for your FICO score. If you have to close an account, close a relatively new one and keep the older ones open. Also, closing an account will not remove a bad payment record from your report. Accounts that are closed are listed with active ones.
The best way to increase your score is to show that you are able to handle credit responsibly-which means not taking too much and paying back what you do borrow on time. Do not open new accounts just to raise your available credit or create a better variety of credit. This is especially true if you’re just beginning to establish a credit history.
When you apply for a loan, the lender will “run your credit”-that is, send an inquiry to a credit rating agencies to figure out if you are credit worthy. Too many such inquiries might hurt your FICO score, since that can indicate you are trying to borrow money from many different sources.
The FICO scoring system is designed to allow for this by considering the length of time over which a series of inquiries are made. Try to do all your loan shopping within 30 days, so the inquiries get tied together and it is obvious to FICO that you are loan shopping.
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