Need Guidance in increasing score

[Anonymous]

Update:

Still waiting on the Comenity card to arrive.   But I found out that I don't have to have the card in my possession in order to use it.  So I think I'm going to go buy something this weekend just so I can get a balance reporting this month.

Also, a change in plans. Originally, I had planned to apply for a mortgage a year from now, but given that:

• My lease expires Mar 2018 and I don't want to break it
• 1 of 2 baddies should fall off my report Mar 2018 - right around the time my lease expires (will try for EE)
• Need a little more time to save up for down payment  for the house and emergency money

I've decided not to apply for a mortgage until April 2018 (at the earliest).

For those who have been so kind to offer guidance (and anyone else who would like to chime in )... is there anything you would change to increase my scores since I have a bit more time before I apply for a mortgage?  

Thank you.

[Anonymous]

Opinion was divided earlier in this thread about whether you should obtain a third credit card.  That was because you were thinking about buying a house fairly soon.  Now that you will not be buying a house till substantially later, there's no longer any question: you will definitely benefit from a third card.

The question is when to apply.  My personal thought is to wait till January 2017 (a few months from now).  Right now your CC debt is high and won't look good to a credit card issuer.  You'll look much better in January. 

If you get your third card in January, then it will be well over 1 year old by the time you apply for your mortgage pre-approval.

So, to recap:

*  Continue to pay off your CC debt.

*  Apply now for a five-year $500 Share Secure Loan from Alliant.  Use the guidance on how to go about paying it down etc.

*  Use both cards you have now every month, let the statements print with a positive balance and then pay the amount owed in full.    When you get your third card (make it a major credit card) do the same thing.  This establishes you as a Transactor which is important given the new way mortgage loans are being evaluated.  You need to start establishing yourself as a transactor ASAP since your history thus far is to carry balances.  Remember that the mortgage lender will be able to see your last 24 months "pattern of use" for your credit cards.

*  Because one of your three cards is a store card, it may well be inconvenient to buy something every month.  Therefore feel free to stop the monthly pattern of use/payoff after January for that store card -- you can dial that down to once every 4 months if that is easier.

* One month before any important credit pull, pay all cards to $0 and let the remaining card report a small amount, like $10 say.  That will get you all the extra FICO points you can get.

* Aside from the SS loan and the third credit card, do not apply for any new credit.

[Anonymous]

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@Anonymous wrote:

Opinion was divided earlier in this thread about whether you should obtain a third credit card.  That was because you were thinking about buying a house fairly soon.  Now that you will not be buying a house till substantially later, there's no longer any question: you will definitely benefit from a third card.

The question is when to apply.  My personal thought is to wait till January 2017 (a few months from now).  Right now your CC debt is high and won't look good to a credit card issuer.  You'll look much better in January. 

If you get your third card in January, then it will be well over 1 year old by the time you apply for your mortgage pre-approval.

So, to recap:

*  Continue to pay off your CC debt.

*  Apply now for a five-year $500 Share Secure Loan from Alliant.  Use the guidance on how to go about paying it down etc.

*  Use both cards you have now every month, let the statements print with a positive balance and then pay the amount owed in full.    When you get your third card (make it a major credit card) do the same thing.  This establishes you as a Transactor which is important given the new way mortgage loans are being evaluated.  You need to start establishing yourself as a transactor ASAP since your history thus far is to carry balances.  Remember that the mortgage lender will be able to see your last 24 months "pattern of use" for your credit cards.

*  Because one of your three cards is a store card, it may well be inconvenient to buy something every month.  Therefore feel free to stop the monthly pattern of use/payoff after January for that store card -- you can dial that down to once every 4 months if that is easier.

* One month before any important credit pull, pay all cards to $0 and let the remaining card report a small amount, like $10 say.  That will get you all the extra FICO points you can get.

* Aside from the SS loan and the third credit card, do not apply for any new credit.

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I plan to apply for SS next week and will pay it down immediately as those who replied before agreed to this action.   

I will definitely wait until atleast Jan to apply for a new card. Ideally, I wanted to wait until my current CU CC reaches it's 1yr anniversary and the current enquiries fall off before I applied for a new card.

Can you help me understand your statement about establishing myself as a transactor?  Assuming that the amount on the statement is what gets reported to the CRAs, how does the positive balance being reported to the CRAs, and then PIF after the statement is cut, establish me as a transactor?

I guess what I'm trying to understand is.... if a balance is reported and I pay in full (after it is reported to the CRAs), then charge something on it, wouldn't I always have a balance each and every month?  Is the point to have a positive balance or to have no balance reported to the CRAs?  I'm probably making this harder than it is, but for some reason, I'm confused.  LOL.

What I have been doing with my currnet CU CC, is the day before the statement is cut (say the 20th of the month), I make sure the balance is what I want it to be. Then I don't use the card until the new balance is reported to the CRAs (say the 28th of the month). So there is a 7-8 period that I don't use the card to ensure it has the balance I want reflected on my CRs.  

I know this is likely answered on the Credit Card forum.  There is a lot to read and...well.. I'm working through it, but there is a lot out there.

Thank you for taking the time out to respond to this post in such detail.  It is very much appreciated.

[Anonymous]

As recently as last year, you would have been right to say that, when preparing for a mortgage, all you have to do is to make sure that most of your credit cards are reporting a $0 balance with one card showing a small positive balance.  And furthermore, you could wait to do that just before you closed on your home. 

This is because basically the only thing mortgage lenders used in their evaluation of your credit report was your FICO score.  (That's an oversimplification but it is basically true.)

Now things are different.  (As of last month.)  Now mortgage lenders look at two things.  They still use your FICO score and it is a heavy driver.  But they also do something else.

They take your credit reports and feed them into a piece of software called Desktop Underwriter (DU).  Actually they have done that for a while.  But the latest version of DU (version 10.0) looks at the last 24 months of your credit card data on the reports.  It looks at the amount reported on the statement (this is the "balance" that the credit card company reported to the credit bureau).  And it looks at the amounts you subsequently paid on that balance.  By doing so, DU can see whether you always pay your CC bills in full (PIF) or whether you occasionally or perhaps often do not pay the full amount.  People who PIF are called Transactors.  People who tend to not do that are called Revolvers.  Transactors are far less risky than Revolvers, statistically. 

It's crucial to realize that this T-R analysis that DU is doing is conducted over the last 24 months of your credit card statements and payments.  So it is important to establish inside your reports that you use your cards and then pay that balance in full -- and to establish this many months prior to when you want to buy the house.  If that is, you want to score well on the T-R analysis that DU does.

The advice I am giving you is a "double" strategy.

        (1)  Use your cards every month, let them report, then pay them off.  Do this for as many months as you can prior to buying the house. This will create a history for yourself as a Transactor.  This will enable you to score well on the T-R analysis that Desktop Underwiter does.

        (2)  Shortly before mortgage pre-approval (and again shortly before closing) pay down all cards to zero except one (which will show a small positive balance, e.g. $10).  This strategy will enable you to score well on the traditional FICO mortgage score.  (FICO's score does not look at the last 24 months of your CC data, just the most recent month.)

Here is a recent thread on the forum that discusses trended data and the T-R analysis being done by Desktop Underwriter.  Read through it and it will tell you more.

http://ficoforums.myfico.com/t5/Credit-in-the-News/Equifax-going-to-report-balance-payment-amount-hi...

[manyquestions]

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@Anonymous wrote:

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I guess what I'm trying to understand is.... if a balance is reported and I pay in full (after it is reported to the CRAs), then charge something on it, wouldn't I always have a balance each and every month?  Is the point to have a positive balance or to have no balance reported to the CRAs?  I'm probably making this harder than it is, but for some reason, I'm confused.  LOL.

---

Have a balance report and then pay that reported balance amount in full each month. It's has to do with new underwriting rules from Fannie Mae. To learn more, google "fannie mae transactors" 

[Anonymous]

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@Anonymous wrote:

As recently as last year, you would have been right to say that, when preparing for a mortgage, all you have to do is to make sure that most of your credit cards are reporting a $0 balance with one card showing a small positive balance.  And furthermore, you could wait to do that just before you closed on your home. 

This is because basically the only thing mortgage lenders used in their evaluation of your credit report was your FICO score.  (That's an oversimplification but it is basically true.)

Now things are different.  (As of last month.)  Now mortgage lenders look at two things.  They still use your FICO score and it is a heavy driver.  But they also do something else.

They take your credit reports and feed them into a piece of software called Desktop Underwriter (DU).  Actually they have done that for a while.  But the latest version of DU (version 10.0) looks at the last 24 months of your credit card data on the reports.  It looks at the amount reported on the statement (this is the "balance" that the credit card company reported to the credit bureau).  And it looks at the amounts you subsequently paid on that balance.  By doing so, DU can see whether you always pay your CC bills in full (PIF) or whether you occasionally or perhaps often do not pay the full amount.  People who PIF are called Transactors.  People who tend to not do that are called Revolvers.  Transactors are far less risky than Revolvers, statistically. 

It's crucial to realize that this T-R analysis that DU is doing is conducted over the last 24 months of your credit card statements and payments.  So it is important to establish inside your reports that you use your cards and then pay that balance in full -- and to establish this many months prior to when you want to buy the house.  If that is, you want to score well on the T-R analysis that DU does.

The advice I am giving you is a "double" strategy.

        (1)  Use your cards every month, let them report, then pay them off.  Do this for as many months as you can prior to buying the house. This will create a history for yourself as a Transactor.  This will enable you to score well on the T-R analysis that Desktop Underwiter does.

        (2)  Shortly before mortgage pre-approval (and again shortly before closing) pay down all cards to zero except one (which will show a small positive balance, e.g. $10).  This strategy will enable you to score well on the traditional FICO mortgage score.  (FICO's score does not look at the last 24 months of your CC data, just the most recent month.)

Here is a recent thread on the forum that discusses trended data and the T-R analysis being done by Desktop Underwriter.  Read through it and it will tell you more.

http://ficoforums.myfico.com/t5/Credit-in-the-News/Equifax-going-to-report-balance-payment-amount-history-Is-this/td-p/4758761

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Wow.  The things I don't know!  Thank you for enlightening me.  I was going to doing what it seemed everyone was suggesting to do, but I just wanted to understand the process and logic behind it, and now I do. Thanks again!

[Anonymous]

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@manyquestions wrote:

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@Anonymous wrote:

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I guess what I'm trying to understand is.... if a balance is reported and I pay in full (after it is reported to the CRAs), then charge something on it, wouldn't I always have a balance each and every month?  Is the point to have a positive balance or to have no balance reported to the CRAs?  I'm probably making this harder than it is, but for some reason, I'm confused.  LOL.

---

Have a balance report and then pay that reported balance amount in full each month. It's has to do with new underwriting rules from Fannie Mae. To learn more, google "fannie mae transactors" 

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Thank you!  It seems this would make it harder for people to get a mortgage, but maybe that is the point.  I mean, how many common people like myself know anything about this.  Knowledge is truely power! Thanks again.

[Anonymous]

I agree that it can seem a little complicated, but that's largely because we are living in an "in between" time.  We are in between the old way of scoring risk (the traditional FICO score) and a newer way.  The old way had no ability to look back over the previous 24 months and see how a person managed his cards during that time -- it could only look at the very last month.  That led to people being able to engage in all kinds of risky habits for years, but then cleaning themselves up the month before they applied for the loan.  They were effectively able to hide their dangerous risk profile from the lender. 

The newer approach (and we're not quite there yet) looks back over time and watches how you in fact manage your credit cards every month, including both the amount owed and of that how much you pay.

If you'd like an analogy to help you see the difference, imagine a company that is trying to decide whether to hire employees.  For this company, drug use is a big warning flag.  For many years the only way they had to screen people is a drug test that measured at that moment whether you had any illegal drugs in your body.  Thus drug users could easily fool that test by going cold turkey ("getting clean") for a few days before the test.  But then a new more sophisticated test comes out that measures whether the person has used any of these drugs in the last 24 months.  That newer test will be a much better predictor.

FICO (the old system) has not yet built this new approach into their scoring models.  The next generation (FICO 10) will undoubtedly have it, but that won't be for a while.  And as far as mortgage scores go, even the existing FICO models being used are ancient.  The one that is used for your Experian score was created back in 1998!

So, like I said, we are living in an "in between" time.  As of fall 2016, the mortgage lenders are still relying on the old scoring approach (the old FICO mortgage scores).  But the lenders are also being required to move into the new approach, which involves looking at your CC data from the last 24 months to see if you are more like a Transactor or a Revolver.  That will also necessarily involved being "scored" as well (what I have calling your T-R analysis score)

And thus if a person wants to optimize how he looks to a lender, he'll be best served by engaging in behavior that maximizes both scores.

As a final note, there's really nothing too tricky or arcane about the newer approach.  It's all stuff that all consumers know in their gut.  Everyone knows that it's really not a good idea to run up your credit cards and then just pay the minimum payment.  We all know that it is much smarter and the sign of a person who has his money under control if he is always paying off his CC debt.  We also all know you should probably show that you do know how to actually use your cards (actually show activity that then gets paid off).  The newer T-R analysis just formalizes all those common sense gut intuitions. 

It was really the older approach that required weird "insider" knowledge.  It was a "trade secret" of the old approach that paying off your cards every month didn't help you, and that you could control how your credit report looked by making payments at certain clever strategic times, and that you needed to make the report look like you had most of your cards at $0 but one card with a small positive balance.  That's actually weird noninutuive stuff.  The newer approach will make it actually easier for responsible Ordinary Joes (with no secret knowledge) to look good to lenders.  They just have to pay their bills every month.

[Anonymous]

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@Anonymous wrote:

I agree that it can seem a little complicated, but that's largely because we are living in an "in between" time.  We are in between the old way of scoring risk (the traditional FICO score) and a newer way.  The old way had no ability to look back over the previous 24 months and see how a person managed his cards during that time -- it could only look at the very last month.  That led to people being able to engage in all kinds of risky habits for years, but then cleaning themselves up the month before they applied for the loan.  They were effectively able to hide their dangerous risk profile from the lender. 

The newer approach (and we're not quite there yet) looks back over time and watches how you in fact manage your credit cards every month, including both the amount owed and of that how much you pay.

If you'd like an analogy to help you see the difference, imagine a company that is trying to decide whether to hire employees.  For this company, drug use is a big warning flag.  For many years the only way they had to screen people is a drug test that measured at that moment whether you had any illegal drugs in your body.  Thus drug users could easily fool that test by going cold turkey ("getting clean") for a few days before the test.  But then a new more sophisticated test comes out that measures whether the person has used any of these drugs in the last 24 months.  That newer test will be a much better predictor.

FICO (the old system) has not yet built this new approach into their scoring models.  The next generation (FICO 10) will undoubtedly have it, but that won't be for a while.  And as far as mortgage scores go, even the existing FICO models being used are ancient.  The one that is used for your Experian score was created back in 1998!

So, like I said, we are living in an "in between" time.  As of fall 2016, the mortgage lenders are still relying on the old scoring approach (the old FICO mortgage scores).  But the lenders are also being required to move into the new approach, which involves looking at your CC data from the last 24 months to see if you are more like a Transactor or a Revolver.  That will also necessarily involved being "scored" as well (what I have calling your T-R analysis score)

And thus if a person wants to optimize how he looks to a lender, he'll be best served by engaging in behavior that maximizes both scores.

As a final note, there's really nothing too tricky or arcane about the newer approach.  It's all stuff that all consumers know in their gut.  Everyone knows that it's really not a good idea to run up your credit cards and then just pay the minimum payment.  We all know that it is much smarter and the sign of a person who has his money under control if he is always paying off his CC debt.  We also all know you should probably show that you do know how to actually use your cards (actually show activity that then gets paid off).  The newer T-R analysis just formalizes all those common sense gut intuitions. 

It was really the older approach that required weird "insider" knowledge.  It was a "trade secret" of the old approach that paying off your cards every month didn't help you, and that you could control how your credit report looked by making payments at certain clever strategic times, and that you needed to make the report look like you had most of your cards at $0 but one card with a small positive balance.  That's actually weird noninutuive stuff.  The newer approach will make it actually easier for responsible Ordinary Joes (with no secret knowledge) to look good to lenders.  They just have to pay their bills every month.

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Makes sense.  But in my wierd way of thinking, I purposefully charged up my card thinking that the lender want to see the card being used and I made large payments every month (much much larger than the min) - again thinking that showed not only was I using the card, but could pay (thereby, showing I have plenty of funds to make a large payment) every month.  Shows what I know! LOL.

So, now I'm wondering...I was going to pay off my high  util CC - lowering the % by a third over the next 3 months (Oct, Nov, Dec). I decided this because the simulator showed my fico score would increase by 55 points if pay off over 3 months vs. 45 points if pay off in one lump sum payment.  But now, as I think about this, I wonder if the 10 point difference is because it is not taking into account the points I would receive for the additional two months of history when I pay in one lump sum. 

I won't be applying for a mortgage until atleast April 2018, so maybe I should just pay the card off now and start showing myself as a transactor as soon as possible.  Since my next statement doesn't cut until the 19th, I have plenty of time to get that PIF balance reporting for this month.  

I was also thinking about asking my CU for a CLI once the card is paid off.  

Any thoughts?

[Anonymous]

100% yes to the idea of paying off your credit cards as soon as possible.  You get no scoring advantage from paying them off slowly.  Ignore what the simulator says in that respect.  Feel free to raise that question on another thread, namely:

Is it better to pay a credit card off slowly?  Simulator says yes.

That way you can hear what other people besides me say.  I am almost certain they will tell you that there is no scoring advantage to doing it gradually.

Once your CC balances are paid down to $0, then continue to use them every month, let that generate a statement, and then pay it off.

Asking your CC issuers for CLIs is fine, as long as you bear in mind three things:

(1)  Make sure that the issuer agrees to NOT do a hard inquiry as a pre-requisite for the CLI.  If they say that their policy is to do a hard pull, just give them a friendly "no thanks, let's not do it then" response.

(2)  A credit line increase (CLI) does not in itself help your score.  In other words, suppose Bob and Fred each have two credit cards.  Bob's have a credit limit of $500 each.  Fred's have a credit limit of $25,000 each.  As long as Bob keeps his utilization low (easy to do) he can have a score just as high as Fred.  Thus part of your "preparing for a mortgage" plan does not need to involve getting CLIs.

(3)  Wait until your existing cards are reporting with low balances before requesting a CLI.  You will increase the chance that the issuer will view you as a safe risk if you do that.