Credit Repair and the Spirit of FICO

If you want real credit repair success you should understand the true spirit of FICO credit scores. I’m not talking about the specific weight FICO places on its components. A grasp of the technical makeup of your credit scores is important to your credit repair effort. But perhaps even more important is an understanding of the true spirit of FICO.

FICO Scores are for Lenders

Your FICO credit score is not a report-card grade on your performance. In fact FICO scores are not designed for consumer use at all. Fair Isaac Corp created FICO scores for lenders as a predictor of potential future default. A low score warns prospective lenders away, while a high score tells them that you are a good risk. To understand the way the engineers at Fair Isaac think let’s look at a couple of examples.

Credit Scores and Credit Cards

Fair Isaac puts significant weight on your Credit Cards because of their distinctive characteristics. Your credit cards are a barometer of your life; they change as you run them up and pay them down. High balances typically correlate with a tighter budget, while low balances occur when you have extra cash on hand. Hence, FICO will lower your score when your balances are high because of the increased likelihood of default. It does not matter if you have never been late before. Statistically, the tighter the budget the higher the risk will be. If you are in credit repair mode, get the balances down and FICO will reward you.

Consumer Debt

Fair Isaac sees consumer debt, such as store cards and furniture store loans as inferior debt and scores it accordingly. Some consumer debt may be excellent, but in most cases the terms are costly and may include a period of time of no payments which will mature into a potentially budget straining payment plan. Fair Isaac treats this type of debt as a forerunner of financial trouble and will lower your score as a warning to lenders. Discounts are great, but while you are working on credit repair be aware of the potential impact on your scores.

Think Like FICO

Help your credit repair success along by learning to think like FICO. Understand that all of your credit activity sends a message to the scoring model. Timely payments tell FICO that you are responsible, and the way you manage your debt sends messages about your current financial condition. Put yourself in the place of Fair Isaac and enjoy your credit repair success. Good luck!

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