The average FICO score for people denied a mortgage in September 2013 was 696, according to Ellie Mae. That’s a pretty good score by any account—the highest possible score is 850, after all. This illustrates how tight credit has become since the financial crisis of 2008. Every single point counts when you’re seeking the best terms and interest rates on mortgages, credit cards and loans. Here are a few tricks to maximize your score.
Ask Creditors to Remove Derogatory Information
When asking for a favor, the worst anyone can do is say no. The same applies when dealing with creditors. Say you’ve had a Visa card through a certain bank for five years. You’ve paid them on time every month, except two late payments four years ago. Write the company a letter explaining how you have been a loyal customer for years and paid them thousands of dollars in interest. Request they remove the two derogatory marks. Let them know that the Fair Credit Reporting Act (FCRA) allows them to remove the marks at will.
These simple letters are surprisingly effective. Even if the initial response is no, write a second letter to the CEO or some other higher-up. Include a copy of the denial letter, and again emphasize the fact you have paid thousands in interest over the years and the company will make more off you in the future. The more patience you have, the more likely the creditor will cooperate.
Dispute Items You Disagree With
The FCRA grants you the right to dispute any information on your credit report you believe is inaccurate. This includes derogatory information that is more than seven years old (10 years for bankruptcies), which must be removed from your credit report in most cases. Dispute letters should be sent via certified or priority mail, so there’s a way to start a clock. Creditors have 30 days to respond to your inquiry.
They can either confirm the accuracy of the information and leave it on your report, or they must remove it. Once the appropriate time has elapsed, you can either contact the three credit reporting agencies to remove the items, or take action against the creditor via the courts or applicable administrative agency.
Pay Down Balances
The amount you owe versus available credit on all your lines of credit accounts for 30 percent of your total FICO score. The worst thing you can do is max out a credit card and only pay the minimum payment each month. Concentrate on paying down credit cards that are near their limits. Those of you receiving regular structured settlement or annuity payments may consider selling your future payments for a lump sum of cash now. You can then use this money to help pay down (or off) those high balances and improve your score. Visit the J.G. Wentworth FaceBook page to learn more about selling your future payments.
Open New Credit
New types of credit on your report account for 10 percent of your FICO score. Granted the inquiry will initially drop your score by a few points, but adding an installment loan to your credit cards and mortgage will raise your score. That’s assuming you manage your credit card debt and make all the monthly payments on time.