I see an ad periodically that claims to raise peoples credit scores by x amount. Now it seems to me that a person’s credit rating is based on his history and that is not going to change. They don’t suddenly become more credit worthy. It sounds a little like painting higher numbers on a thermometer and claiming that it’s warmer. What do these companies actually do?
The companies offering this ARE the credit score companies. The main thing they do is add bills that normally wouldn’t be on your report to it. So if you’re good about paying off your cell phone bill and your Netflix bill and so on, it increases your credit score. Usually the effect is greater for people who don’t have much a traditional credit history.
In addition to what’s already been mentioned, there are things you can do to improve your credit score.
For example, collection agencies will report bad debts to the credit agencies that ding your credit score. But you have well-defined rights. If you do not just ignore them but contact them and formally dispute an alleged debt (you can find letter templates with appropriate language online to do this in the right way) they are obligated to rescind the report to the credit agencies. Unless they can prove it and it reaches a point where (say) a court has told you to pay and you’re still not paying, it has no further impact on your credit rating.
Credit scores also depend on a bunch of nebulous to us factors such as how many balances you carry. So if you owe, say, $500 on three credit cards each, you might improve your score by paying off two of them by transferring their balances to the third, even though the fees for that will increase your total indebtedness.
Having lots of dormant credit is also a negative, although usually only a slight one. The thinking being that while you only owe $0 on those unused cards & credit lines right now, you could change that tomorrow and suddenly be an extra $10K or $60K or whatever deeper in debt. If as a bank I was about to write you a car loan I might care about your ability to paint yourself into a corner with all that other potential debt just after I fund your car loan with real debt.
etc.
This is somewhat in tension with the fact that using a lower percentage of your available credit is a positive factor. I’m not quite sure how that works.
There are 6 factors shown on my credit report.
High impact:
Payment history
Credit card usage (low % of available credit is good)
Derogatory marks
Medium impact:
Average age of open accounts
Low impact:
Total # accounts - more and more variety of credit history is better
Hard inquiries - applications for credit
I have no idea if this is an exhaustive list of factors.
Very interesting. I’ve not pulled one of my own reports in a few years. But last time I did so, having an excessive number and amount of unused credit was stated as a negative.
On that basis I suspect they have a model of what a “normal person” is supposed to look like. And they penalize folks who are different. Whether that’s more unused cards or fewer. Whether that’s more unused credit or less. I’m far from a fat-cat, but I’m also not exactly working-class either. So sorta out of the center of their rating wheelhouse.
One thing is for sure: Fair Isaacs’ model called FICO, Equifax’s model and all the rest are a secret, at least in detail, if not in broad brushstrokes. Anyone claiming to understand it, or claiming to know how to game it for the consumer’s benefit are relying on circumstantial reverse engineering for their data set.