How to Improve Your Credit Score

All 3 credit bureaus generate a FICO score. FICO is a proprietary formula calculated by Fair Isaac to determine the credit risk of the borrower. Due to the fact that they all don't get the same information, the scores tend to vary, sometimes in a small tight window and sometimes as much as 50 or 60 points.

Generally speaking, 700 and higher is considered to be a good score. Often this credit score will get A or B+ paper pricing for a lease.

So how do we raise our credit score? One of the easiest ways is to tackle the Revolving Debt. Revolving Debt is all the non-mortgage debt listed in a credit report. All revolving debt (usually credit cards and store cards) have the common trait of once a bill is paid, then that amount of credit becomes available for borrowing again. Think of a CC where when you pay $500, then your credit limit increases by $500 allowing you to use that $500 for another purchase. So one of the first things we look at (as well as our funders and anywhere else where you borrow) is the % of Revolving Debt available.

Why? Because people believe (rightly) that the first thing to happen when someone is struggling financially is more is put on their CC and that % goes down. So the technique for reducing your revolving debt and increasing your FICO score is to take the minimum payment showing on your bill and add 20% to it (multiply by 1.20). Make this payment for 3 straight months and your Revolving goes down and your FICO goes up. 3 months are required as credit reports only update every 90 days so they need to see at least 3 months of doing this. Its not uncommon to see scores increase as much as 40 or 50 points in 90 days, which translates into a significant savings on lease payments.

Stu
Southern Lending Solutions