There are five things that are looked at when your score is calculated and they are:
1. Payment History – 35%
2. Amount of Debt – 30%
3. Types – 10%
4. Inquiries – 10%
5. Length – 15%
What does this mean and what do I have to do to raise my score?
Payment History – this is your record of payments. This is where the negative items on your report will count; Charge offs, collections, judgments, repossessions … However if you pay your current bills on time and avoid any more new negative entries then you can improve this.
As the negative marks get older they have much less influence, and if you create positive history then you can see this area improve. Additionally you can file a dispute with the bureaus and have them investigate an item. During an investigation if the item can not be verified it must be removed from your file.
Amount of Debt – this is just what it sounds like and it will look at your; Student loans, car loan, mortgage … Additionally it will look to see how much available credit you have, if you can show that there is money available to you that you are not borrowing it will help tremendously.
Types – this looks at the types of loans you have used. The idea is that the more different types of borrowing you have done, you will be a safer risk. You can not really influence this section much so instead focus your efforts on what you can do. Rathermore this is only a minor contributor to the formula at roughly ten percent.
Inquiries – how often is your file being checked? Every time a business or lender checks it, a notation is made on your report. If this is happening a lot it appears that you are trying to make a lot of purchases and will negatively affect your rating.
Length – how long have you been borrowing or financing purchases, how old is your file? This is another aspect that you have no real control over.
The most effective method is to remove negative items from your reports. This section carries the most weight with your score and is one that the Federal Government has taken action to ensure you can do.
The Fair Credit Reporting Act was passed by Congress and this gives you the right to dispute any item on your file that you feel is inaccurate. It also says that the maximum amount of time an item can be listed on your report is seven years.
You need to take full advantage of this piece of legislation as it is one of the few attempts our government has made to protect consumers instead of looking after private big business interests. The bureaus have a large influence with politicians and have been very successful in their efforts to minimize this law. This is often why you hear people say you have to just live with negative marks.