by Merrill - Friday, January 27, 2012
It’s time to get “Credit Fit” and get the credit score you want: How does your credit compare to the Perfect Credit Profile?
With thoughts of New Year’s Resolutions are racing around your mind like cars in the upcoming Daytona 500. Many people have a goal of getting in better shape physically, but how about getting in better shape financially? Most of us go through life believing certain myths about credit and we end up with our good credit score through sheer luck. And when you end up with a good credit score from luck, without knowing why, it is very easy to fall from grace with the credit bureaus and you can see your good credit disappear.
It doesn’t have to be this way. At CreditSense we have called on the expertise of renowned credit expert Merrill Chandler to learn exactly what it takes to create an 800+ credit score.
What does it take to create the “Perfect Credit Profile?”
The first question I want to address is one we hear repeatedly: Is there really a perfect credit profile? The answer is very simply yes. Your credit score is a mathematical calculation derived from the FICO algorithm—it measures patterns in your credit profile to determine how likely you are to pay back money that you borrow.
FICO credit scores can range from 350 to 850, depending on the version of the FICO scoring software that a credit bureau uses. An 800+ credit score has certain characteristics. If your credit profile has those characteristics, then you will have an 800+ credit score. It is just math and it is just that simple. The take home message here is that if you know what the characteristics are of an 800+ credit score, then you can control how to create one for yourself.
It takes time to reach an 800+ credit score.
Think about it like this. What is your credit score now? How long did it take to get it? And, now we need to correct any errors or mistakes that you have made in creating your current score. If you are one of the millions of Americans who have bad credit, even terrible credit, it is going to take you more time to climb the ladder to great credit than someone who is starting out with a good credit score. If you have no credit, this is great information for you too. Better to build it right the first time than to build it and go back and take it apart, and have to build it again.
Your credit profile is made up of 6 distinct areas. We will take a look at each of these and tell you what it takes to make them an 800+ credit score profile.
1. Your Credit Identity
A perfectly crafted personal credit identity has each of the following:
Identity is made up of identifiers and locators. When you create a single permanent credit identity, you not only protect your identity but you also create a singular experience for reporting, for all of your creditors and the credit bureaus. It is essential that your singular credit identity be used exactly the same with anybody who could possibly report about you to the credit bureaus.
- A perfect profile has a single set of Identifiers
- A perfect profile has a single set of Locators
- A perfect profile has only one phone number that allows creditors to contact you whenever they need to. The longer that phone number has been in use, the better. Creditors want to know that they can contact you. We have a great tip on how to do this and meet all of their needs while maintaining your privacy and control at CreditSense.
2. Your Revolving Account Portfolio
Your revolving account portfolios is called a portfolio because it is the grouping of your revolving accounts. For example, your revolving account portfolio isn’t just your Citi Bank credit card, it’s your Citi Bank credit card, Wells Fargo MasterCard, American Express card and your Discover card. All of these together create your revolving account portfolio. It is helpful for you to know that your credit portfolio tracks credit limits, credit balances, utilization ratios, the age of your accounts, and the types of account you have.
Most people do not know that you get different points for having a Visa or MasterCard revolving account versus a department store card or a finance company card. And many don’t realize that some of their department store cards are actually finance company cards. Most department stores don’t “carry their own paper,” so those credit cards are financed by a finance company. You ultimately receive a smaller percentage of the available credit score points for that type of revolving account. There are many points to be gained and lost in your revolving account portfolio so make sure your accounts are optimized as closely to the ideal credit profile as possible, to give you the highest yield of credit score points possible.
3. Your Installment Loan Portfolio
Your installment loan portfolio tracks all of your set term loans. Installment loans are measured differently than your revolving accounts. The credit scoring software tracks how many accounts are open in your installment loan portfolio, the loan limits, what the balances are, how old they are, how long they have been open, the loan type, and your payment history. Your installment loans contribute significantly to building a foundation for your credit profile. With installment loans, you will have a different point differential if you have three or four of them than if you have fifteen in your installment loan portfolio. Your score is based on each of the listed components of your profile. You need to measure, and change your installment loan portfolio, to fall in line with the ideal credit profile, in order to acquire the highest number of credit score points.
4. Closed Account Portfolio
The perfect closed account portfolio has ZERO revolving accounts. Your closed accounts have bearing on your credit profile beyond payment history. For example, if you’re going for a car loan and you have six completely paid to term car loans in your closed account portfolio, you will receive more FICO score points and a higher underwriting value than if you have one or no closed installment loans for cars. You actually derive points for the next loan you’re going after from your installment loan portfolio. Successful fulfillment of installment loans in your closed account portfolio helps bolster your credit score and underwriting ability. Conversely, it actually hinders your credit score if you have closed revolving accounts in your closed account portfolio. No closed revolving accounts in your closed account portfolio is ideal and will actually yield more points for your credit score.
Anytime a creditor or lender pulls your credit it registers an inquiry on your credit report, known as a “hard pull.” When you accumulate too many hard pulls that can make your credit score drop. Inquiries generally stay on your credit report for 24 months. They generally count against your credit score for 12 months and they have the highest impact against your credit score in the month they are first reported. As most people know, too many inquiries makes it look like you are constantly trying to get more credit, and that in turn makes you a higher risk to new lenders.
6. Derogatory Accounts.
For the perfect credit profile it is very simple. Zero derogatory accounts. Don’t get discouraged if you have a derogatory or two, because there is still hope for you. You can still have an 800+ credit score with a negative listing or two reporting on your credit report. If possible avoid getting late pays and other derogatory marks. It will make your 800 credit score so much easier to obtain.
Your credit profile is a minefield. Be careful so you don’t blow it up!
Little financial decisions you make every day create massive amounts of data points that the three credit bureaus (and credit aggregators like CoreLogic) use to provide lenders and creditors information on you. The data points they gather is what we call your credit “profile.” Every choice you make and every change that is made inside your credit profile has a direct affect on every other data point collected on you and because of that has a direct effect on your credit score. You should know how a “simple” change you’re making today has an impact on everything else about your credit profile.
Remember, Don’t blow up your credit! Before you make any changes to existing accounts, know exactly the affect those changes will have on everything else in your credit profile. If you have any questions, ask us on www.FaceBook/CreditSense. We get you the help you need to have an 800+ credit score.
That is what it takes to have a perfect credit profile. Don’t be discouraged if you believe that you are a long way from this perfect profile. It took you a while to create an imperfect credit profile and get the credit score you have now, so be patient as you fix your credit and re-create your credit profile into a perfect one.