Help needed to raise FICO score

[Anonymous]

Hi,

I'm new to the forum and I really like it here. I love how people are really willing to help. I've got a question that most experts would probably be very familiar with.

My Equifax FICO score is currently 720. I have a mortgage, two credit cards, and an auto loan. I've never missed a payment, and my credit card revolving amount is always less than 9% of my total available credit, sometimes 1%.

Some banks/credit unions require a score of 760 to get the best interest rates. I have no idea of how I am going to raise my FICO score to something similar. My oldest account is about two and a half years old. I used the score simulator and the best advice that was given was to pay down my credit cards (which I've already been doing), and my score will be 720-750 in two years.

Is there absolutely no way to raise my credit score to what banks and financial institutions would see as a good score? If the simulator is correct, I can still be stuck at 720 after two years of doing the right thing. Is there anything I can do?

Thanks!

[MarineVietVet]

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@Anonymous wrote:

Hi,

I'm new to the forum and I really like it here. I love how people are really willing to help. I've got a question that most experts would probably be very familiar with.

My Equifax FICO score is currently 720. I have a mortgage, two credit cards, and an auto loan. I've never missed a payment, and my credit card revolving amount is always less than 9% of my total available credit, sometimes 1%.

Some banks/credit unions require a score of 760 to get the best interest rates. I have no idea of how I am going to raise my FICO score to something similar. My oldest account is about two and a half years old. I used the score simulator and the best advice that was given was to pay down my credit cards (which I've already been doing), and my score will be 720-750 in two years.

Is there absolutely no way to raise my credit score to what banks and financial institutions would see as a good score? If the simulator is correct, I can still be stuck at 720 after two years of doing the right thing. Is there anything I can do?

Thanks!

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Welcome to the forums.

It sounds like you are doing good things by looking at your score. One thing that might be holding you back a little is a short credit history and that can be tough to overcome. Time is usually the only thing that will help.

One option is having yourself added to an account as an Authorized User. If it is older than any of your other cards it will help your AAoA (Average Age of Accounts) and credit length history. But it also needs to have a very low utilization and an excellent payment history. You will inherit everything about this account. Remember though that if that account starts going bad you will be affected by that also.

From a BK years ago to:
EX - 9/09 pulled by lender 802
EQ - 7/06-663, 3/10-800
TU - 8/10-772
You can do the same thing with hard work

[CreditAble]

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@Anonymous wrote:

Hi,

 I have a mortgage, two credit cards, and an auto loan. 

I have no idea of how I am going to raise my FICO score

I used the score simulator .... and my score will be 720-750 in two years.

Is there absolutely no way to raise my credit score....

... If the simulator is correct,

... Is there anything I can do?

Thanks!

---

Frankly the simulator is not meant to be an accurate, "correct", prediction of what will definitely happen. The simulator is just a rough sketch of the kind of results that could be produced by certain actions on your part .

The installment loans are also factors in scoring. If your auto loan and mortgage are less than two years old and you haven't had any other installment loans you might get some scoring help when they age some more. 

Furthermore original loan amount verses outstanding balance (utilization) on the auto loan and mortgage are factors in scoring. Something that you can do, is to pay extra to reduce installment loan balances. Making extra payments on the car loan to substantially lower the balance by the time you need your higher FICO score will probably help. Do not however pay off the car loan completely before two years of on time payments have been made. 

[Duke-of-Earl]

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@Anonymous wrote:

... I used the score simulator and the best advice that was given was to pay down my credit cards (which I've already been doing), and my score will be 720-750 in two years...

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I don't think I can offer any advice more useful than what the above experts have already given, but I can tell you I've found the simulator to be absolutely useless.  It gave me the same advice that you got:  do something I've already been doing, and maybe my score will go up by 30 points.  Or maybe not.  SInce I haven't changed my credit-related activities for many years, I'm pretty sure the simulator would have given me the same advice three years ago, and I'd be disappointed today.

So I'd say don't count on "keep on doing" anything.  The advice others have given, to pay down your car loan in particular, is much more likely to have an effect.

[Anonymous]

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@CreditAble wrote:

Making extra payments on the car loan to substantially lower the balance by the time you need your higher FICO score will probably help. Do not however pay off the car loan completely before two years of on time payments have been made. 

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Thanks to everyone who replied. Could you help me understand how making extra payments to the car loan might help? Given that my mortgage obviously constitutes a much larger percentage of my total debt rather than the car loan, am I right to assume that car loans are considered independent of my total debt? Also, this is the first time I've heard of paying off a loan in less than two years hurting the score. Could you share more details?

[MarineVietVet]

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@Anonymous wrote:

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@CreditAble wrote:

Making extra payments on the car loan to substantially lower the balance by the time you need your higher FICO score will probably help. Do not however pay off the car loan completely before two years of on time payments have been made. 

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Thanks to everyone who replied. Could you help me understand how making extra payments to the car loan might help? Given that my mortgage obviously constitutes a much larger percentage of my total debt rather than the car loan, am I right to assume that car loans are considered independent of my total debt? Also, this is the first time I've heard of paying off a loan in less than two years hurting the score. Could you share more details?

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I'll give my opinion about paying down debt but remember it's only my opinion.

I believe you should always pay off any debt as fast as possible. Being debt free is always my #1 priority and trumps any consideration of a score. I've never heard of stretching out a debt to help your score. All that does is cost you interest and I would never recommend such a strategy. If you have the funds to pay off a car loan in 6 months or a year or any amount of time early then by all means do it.

To answer something else you asked a car loan is added to total debt just as any other obligation.

From a BK years ago to:
EX - 9/09 pulled by lender 802
EQ - 7/06-663, 3/10-800
TU - 8/10-772
You can do the same thing with hard work

[haulingthescoreup]

If you have an open mortgage, you're not getting any extra brownie points to speak of for the open auto loan. The mortgage will take care of the installment part of the credit mix.

I think it makes sense to aim for good credit scores to help our finances, not the other way around.

[RobertEG]

You have a very good score now!

Sure, everyone wants to move into the 760+ club, but that requires a lot.

The FICO simulator is not suited, in my opinion, to your specific conditions, and I would ignore any of their projections.

You have seen the value of their projections from the advice they have offered, which is apparently nothing more than what you are doing.

You have a mix of revolving and installment loans.  You have a perfect payment history.  You have low util on revolving credit.

FICO puts very little emphasis on the balance or % util on installment loans, so I would not be in a rush to pay them down with any expectation of any FICO scoring benefit.

As was said, your primary FICO scoring hit is coming from a relatively low average age of accounts, and low oldest credit line.

Only time can build age of accounts.

FICO places consumers, when calculating credit scores, into categories, that most here on the site refer to as "scoring buckets."  You are in the top tier of bucketing in most categories, except for length of credit history.  You will be scored with the "big boys" once you arrive at or near the average age of accounts, which is around 7 years.

I see a couple of more years before you can build up age of credit history to a level that would permit entry into the 760+ club.

Meanwhile, I think your credit history is one that most on this site would die for!  Great work! 

[CreditAble]

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@Anonymous wrote:

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@CreditAble wrote:

Making extra payments on the car loan to substantially lower the balance by the time you need your higher FICO score will probably help. Do not however pay off the car loan completely before two years of on time payments have been made. 

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Could you help me understand how making extra payments to the car loan might help?

Also, this is the first time I've heard of paying off a loan in less than two years hurting the score.

Could you share more details?

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The outstanding balance on an installment loan compared to the original loan amount is taken into account by FICO scoring. It doesn't however,have the same degree of negative impact that high utilization on revolving accounts have. Supposedly high "utilization" on an installment loan has the most negative impact when you have no prior installment loan history. I do not know how old your mortgage and car loan are. They are both installment loans. The history of each of those determine the degree that outstanding balances have on your credit score.

First a little background about installment loan risk from a lender's point of view. If a borrower has difficulty paying payments on his credit cards, he can use his grocery, and utility bill budget funds to pay minimum payments on his credit cards. He can then use the credit cards to buy groceries and pay bills. He can therefore juggle his finances for quite a while (on credit cards) before defaulting on his obligations. On the other hand money paid towards installment loan debt can not provided additional cash flow or purchasing ability. If a borrower has little or no on time repayment history for prior installment loans, he is considered a higher risk if he still owes close to the original loan amount on current installment loans. Borrowers with short histories such as yours are especially at risk. The longer the installment loans have been open and the lower the balances are (compared to original loan amount) the lower the risk to the lender.

 A consumer (with a high install loan balance) is considered less of a risk if he has two paid off installment loans that were open for at least two years in his credit file. Absent two paid off loans, one's score will benefit by lowering (installment loan) outstanding balances as much as possible. I am assuming that you have no paid off loans since you didn't mention any. The reason that I focused on paying down the car loan and not the mortgage, was that you could get more credit score bang for your buck. Presumably it takes a lot less money to pay down your car loan than your mortgage.

 Others might not agree with my advice against paying the car loan off prior to two years. It is frequently stated that saved interest is more important than a higher FICO score. Actually I prefer to pay cash for my cars. It would seem that the best practice would be to take out a loan and pay it off in full when the first payment is due. Sadly that would do next to nothing to help a FICO score. In that case a borrower would still not have demonstrated any "responsible" loan repayment behavior over time. He would only have demonstrated that he was buying the car for cash and decided to wait one month to write the check. Would waiting three months to pay cash for the car be a better indication of a consumers ability to manage credit obligations over time? Not really. How about 6, 12, or 18 months? The answer is, drum roll please.... 24 months. Sure a person can pay off an installment loan anytime to save interest.

Paying off a loan in less than two years does not hurt a score, but the next time the consumer opens a subsequent installment loan the initial balance due on the new loan will hurt his score much more than if he possessed (in file) two paid loans of two years duration each. Furthermore one might not get the maximum boost to a FICO score that a paid off loan might otherwise have provided.

I was made aware of the two loans for two years each a long time ago, even before MyFico started this forum. I don't have any current references to point you to. The original statement was definitely a quote from a Fair Issac horse's mouth.

[CreditAble]

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@Anonymous wrote:

 Also, this is the first time I've heard of paying off a loan in less than two years hurting the score. Could you share more details?

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I just located this old thread  http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/My-only-installment-is-about-to-close-score-damage/td-p/471729

Maybe you might find it interesting.