How To Achieve Perfect Credit

The Path to Perfection

Perfect credit requires timely payments, but that is just the beginning. If your goal is to have the highest possible credit score you must understand the mechanism of the FICO scoring model and structure the content of your report accordingly. Here are some well tested credit repair tips that will take you to your goal. Many of the adjustments you must make will seem like common sense, while others will be less clear, but you cannot reach the summit of credit perfection without playing by the rules.

Be Good

Don’t’ make late payments. This cannot be over emphasized. A single late payment can devastate your credit score, and although the impact of a single isolated derogatory issue will fade substantially in a matter of months, it can put a serious dent in any financing activity you have in mind for the immediate present. Make sure this does not happen. Avoid silly mistakes; if you have a payment dispute make your payments on time until resolution, if you return a purchase don’t count on the credit to cover your payment on time. When it comes to credit repair, every detail matters.

Build New Credit

If hard times have left you without credit, you must open accounts now. Your credit score will languish forever if you are not feeding the credit bureaus positive data every month. If you can’t get approved for regular credit cards, get secured cards. The limit is of no consequence. Just get started today. Secured cards are the perfect credit repair tool and can make a major difference in your scores. As your score improves you will be able to phase out the secured cards as you are offered superior unsecured cards.

Eliminate Store Cards

The FICO scoring model does not treat all debt the same. Store cards and consumer debt, like furniture loans, are not a good way to rebuild credit. There are several reasons for this, but the crux of the issue is the built-in FICO bias against this type of debt. There is some logic behind this treatment, as this type of debt is often inferior and in many cases has a built in budget “time bomb” in the form of tempting time-limited no payment offers. This is not entirely fair, as many of these offers make great financial sense, so make your best choice, but be aware.

Optimize Revolving Debt

Keep your revolving balances as low as possible. The optimal revolving balance for credit repair purposes is under 20 percent of the available limit. The FICO scoring model puts major importance on this factor; you can lose over 100 points for a maxed out credit card depending on the overall content of your credit report. The more depth and breadth your credit has the smaller will be the impact, but don’t ignore your balances. If you are planning any significant loan application in the near future make sure to reduce your balances at least 60 days in advance as the credit bureau balance updates are lagging.

Structure the Report Content

I am often asked what a perfect 850 credit score looks like. I’ve never seen a perfect 850, and wonder if such technical perfection is possible, but I have seen successful credit repair clients achieve scores over 820 and they all have similar characteristics. The perfect credit score seems to include the following: one mortgage over three years old, one or two auto loans over two years old, and between three and five credit cards over two years old with very low balances. You will notice that there is a time factor involved in all of these accounts mentioned, but there is also a neat equilibrium of clean installment and revolving debt.

Pay a Consultant

Your credit is important. Most lenders rate and price loan applications based on scores. The difference between decent credit and great credit can translate into thousands of dollars in interest payments each year. You cannot afford to ignore any opportunity to optimize your scores. Professional credit repair services are very affordable and will insure that no opportunity is missed. If you don’t feel up to the task yourself, make an investment in your life and hire a credit repair professional.

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Buddy, can you spare100 FICO points?

MINNEAPOLIS - Americans’ credit scores, the three-digit number that determines whether you’ll get a loan and how much you’ll pay for it, keep taking a beating.

Millions of consumers’ scores have dropped, making it more expensive for them to borrow money - or even impossible if the score has sunk low enough.

‘‘You have to watch out for a vicious circle. Now you have a bad credit history, which makes it harder for you to recover," said Evan Hendricks, a Washington-based expert and author on credit reports and scores.

The falling credit scores are a reflection of the times: plummeting home values, record foreclosures and the overall recession. At the same time, lenders are applying stricter standards to borrowers, including requiring higher credit scores. ‘‘For better or worse, our economy is very dependent on consumer spending,’’ Hendricks said. ‘‘If tougher standards mean that people with good credit can’t get credit . . . that could choke off the recovery or slow it down.’’

Most Americans may not know their actual credit score, but they’ve seen enough marketing by the credit-score companies, including Minneapolis-based Fair Isaac Corp., known as FICO, to know that the number, which can range from 300 to a perfect 850, has become a de facto national ID. Lenders rely on Fair Isaac’s FICO score, but so do employers when screening job candidates, insurers when issuing policies for homes and autos, and landlords when renting an apartment.

And exactly what many people are experiencing now - foreclosures, late credit-card payments - will bring down their credit scores.

Americans carry $2.56 trillion in consumer debt, up 22 percent just since 2000, according to the Federal Reserve. The average household’s credit-card debt is $8,565, up almost 15 percent from 2000. And a report out last month said borrowers with good credit now make up the largest share of foreclosures.

‘‘There’s no question a foreclosure can really slam your score,’’ Hendricks said. ‘‘It will easily send you into subprime territory.’’

Overall, he said, two major factors are bringing down credit scores: late payments because of the economy and credit-card companies reducing credit limits, meaning people are using a greater percentage of their available credit.

Walking away from a house takes a toll on a foreclosed homeowner’s credit. But so do late payments - in particular those that are more than 90 days overdue. According to Fair Isaac, which created automatic credit scoring, bankruptcy, credit card defaults and foreclosures stay on a person’s credit report for seven years. That said, a single bad account such as a foreclosure would be better than a bankruptcy, which usually involves many defaulted accounts. But if all other bills remain current, Fair Isaac says a foreclosed homeowner’s score could begin to rebound in as little as two years.

Fair Isaac shies away from devising a rating system of what ranges are ‘‘good’’ and which are ‘‘bad,’’ saying each lender has its own standard. In general, a score of 700 or better is a sign the consumer handles credit well. Most lenders say a score of 650 or below indicates a high credit risk that could mean higher interest rates or a tougher time getting credit. Information for the score is based on that person’s credit report.

The top 25 auto lenders and credit-card issuers use some version of the FICO score to make lending decisions, as do 90 of the top 100 U.S. financial institutions. It’s common for mortgage originators to pull credit scores from all three major credit bureaus and average them to help determine a consumer’s interest rate. For consumers, getting your credit report is easy - and free if you go to the right spot - but getting your score can be more complicated.

The three credit bureaus, Experian, Equifax and TransUnion, sell reports and scores to lenders and consumers. Also, Fair Isaac sells the bureaus’ FICO scores directly to consumers via myfico.com.

Fair Isaac spokesman Craig Watts estimated that the three credit bureaus sell ‘‘well over 10 billion’’ FICO scores each year to businesses.

Asked whether Equifax has seen an increase in consumers seeking credit information, company spokeswoman Wilson said, ‘‘Definitely, especially right now. People are very concerned about their scores. It’s the economic environment, the tightening credit market. People are very concerned about how their credit behavior impacts their financial well-being.’’

Under the Fair and Accurate Credit Transactions Act (FACT), consumers can get one free credit report a year from each of the three big credit bureaus. Consumer advocates warn of the many companies that have sprung up that charge consumers for information they can get for free.

Consumers who want their credit score will need to pay a small fee - generally about $15.

Consumer advocates recommend checking your report periodically. If you see inaccurate information on your report, inform the credit reporting company. Those companies must investigate and will generally do so within 30 days.

While Watts said millions have seen their scores drop, a ‘‘like’’ number of savvy consumers have seen their scores go up because they paid off balances and put off big purchases when the economy started to spiral down.

In good times, he said, the distribution is shaped like a bell curve. During a recession, it retains that shape but flattens out. ‘‘You have fewer people in the middle . . . and more people at both ends,’’ he said.

Watts said the best advice he can offer to consumers is this: ‘‘Don’t get too excited about the nuances in credit scores.’’

There are no ‘‘quick fixes’’ to repair a bad score.

‘‘The same general rules apply today that have applied for the last 20 years,’’ Watts said. ‘‘Pay your bills on time, keep balances low relative to the limit and take on new credit only . . . when needed. Those consumer habits are going to steer you in the right direction.’’

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