Credit miscues take time to mend

For years I’ve been trying to manage my credit to achieve the Mount Everest of credit scores – a perfect 850.

I’ve been able to reach the high 700s, but alas, I’ve never reached the mountaintop.

Actually, I don’t really need a perfect score to get the best credit deals. For the most part, any score above 700 (FICO, the score used mostly by lenders, ranges from 300 to 850) will likely qualify me for the best interest rates around. In fact, climbing to the best credit score isn’t about perfection so much as avoiding the pitfalls that will bring your score down.

Recently, I passed out some tips to crack the credit scoring code. That generated even more questions from a slew of readers also in search of better scores. Read and learn:

Question: I co-signed a car loan for my daughter, and she had one late payment. The loan was paid off two years ago. How much does this affect me, and when will it clear?

Answer: This is why I advise against co-signing for people, even your children. When the borrower you’ve co-signed for pays late, that is reported on your credit report as well. That in turn can lower your credit score.

The effect that a single late payment has on the person’s FICO score depends on several things, said Craig Watts, public affairs manager for Fair Isaac Corp., the firm that developed the most popular of the credit scoring models.

Watts said the scoring system considers how late a payment was, how much was owed, how recently it occurred and how many late payments are on a person’s credit report.

So a 60-day late payment lowers your score less than does a 90-day late payment. But recent late payments and the frequency of late payments count, too. For example, a 60-day late payment made just a month ago will lower the score more than a 90-day late payment from five years ago.

The good news is your credit score is in constant motion, so with each passing day, week, month or year, negative information has less impact.

And under federal law, credit bureaus must remove negative records from your credit report after seven years.

Question: I have six credit cards open, and five of them have no balance and I rarely, if ever, use them (four have not been used in the past year). Is it better for my credit score to leave those accounts open and not use them, or to close them?

Answer: It’s better for your score to leave those accounts open. One major factor in your credit score is the longevity of your credit card accounts. Your score gets a boost from accounts that have been open a long time.

Question: I have one (and only one) credit card that has been active for several years (at least six). I use it some months more than others, but always pay the balance in full each month. Over the years, the limit on my available credit has been steadily increased by the issuing bank (not at my request) to $60,000. How is this amount of available credit viewed in terms of its impact on my credit score? Should I write the credit card company and ask them not to increase my credit limit?

Answer: The scoring system Fair Isaac uses doesn’t look at your credit limit in isolation. Getting a higher credit limit could have a neutral effect on your score or a beneficial effect, but it wouldn’t hurt your score, Watts said. The FICO score algorithm looks at your credit limit in relation to whatever balances you may have on your revolving credit accounts. The key in this credit game is to keep your credit utilization very low.

“So if a person has zero balances reported on their revolving accounts, they will have a zero percent credit utilization rate regardless of how high their credit limits are raised,” Watts said.

In practice, this is what Watts means. Suppose you have two credit cards, one with a credit limit of $5,000 and $4,000 in outstanding charges. The second card has a credit limit of $10,000 but no outstanding charges. Your credit utilization on the first card is 80 percent. (That’s not good). Your overall revolving credit usage for both cards is just under 27 percent (much better). Now, if the credit card company raises your limit on the first card to $20,000, the amount of credit you are using drops to 20 percent. The effect of raising the limit also takes your overall utilization to about 13 percent (pretty good).

Depending on your outstanding balances, your score could be helped if a creditor raises your credit limit. The higher limit would lower your credit utilization rate for that particular account and for your accounts collectively, assuming your balances didn’t rise at the same time, Watts said.

By the way, only 13 percent of consumers have FICO scores in the 800s. But in case you’re as obsessed as me with joining that elite club, just know that lenders generally don’t distinguish between people with FICO credit scores of 720 or higher and those with a perfect 850. If you’re in that range, you’ve reached the top of the mountain.

Washington Post Writers Group

Talk to us

More in Herald Business Journal

Members of Gravitics' team and U.S. Rep. Rick Larsen stand in front of a mockup of a space module interior on Thursday, August 17, 2023 at Gravitics' Marysville facility. Left to right: Mark Tiner, government affairs representative; Jiral Shah, business development; U.S. Rep. Rick Larsen; Mike DeRosa, marketing; Scott Macklin, lead engineer. (Gravitics.)
Marysville startup prepares for space — the financial frontier

Gravitics is building space station module prototypes to one day house space travelers and researchers.

Orca Mobility designer Mike Lowell, left, and CEO Bill Messing at their office on Wednesday, Aug. 16, 2023 in Granite Falls, Washington. (Olivia Vanni / The Herald)
Could a Granite Falls startup’s three-wheeler revolutionize delivery?

Orca Mobility’s battery-powered, three-wheel truck is built on a motorcycle frame. Now, they aim to make it self-driving.

Catherine Robinweiler leads the class during a lab session at Edmonds College on April 29, 2021. (Kevin Clark / The Herald)
Grant aids apprenticeship program in Mukilteo and elsewhere

A $5.6 million U.S. Department of Labor grant will boost apprenticeships for special education teachers and nurses.

Peoples Bank is placing piggy banks with $30 around Washington starting Aug. 1.
(Peoples Bank)
Peoples Bank grant program seeks proposals from nonprofits

Peoples Bank offers up to $35,000 in Impact Grants aimed at helping communities. Applications due Sept. 15.

Workers build the first all-electric commuter plane, the Eviation Alice, at Eviation's plant on Wednesday, Sept. 8, 2021 in Arlington, Washington.  (Andy Bronson / The Herald)
Arlington’s Eviation selects Seattle firm to configure production plane

TLG Aerospace chosen to configure Eviation Aircraft’s all-electric commuter plane for mass production.

Jim Simpson leans on Blue Ray III, one of his designs, in his shop on Friday, August 25, 2023, in Clinton, Washington. (Ryan Berry / The Herald)
Whidbey Island master mechanic building dream car from “Speed Racer”

Jim Simpson, 68, of Clinton, is using his knowledge of sports cars to assemble his own Mach Five.

An Amazon worker transfers and organizes items at the new PAE2 Amazon Fulfillment Center on Thursday, Sept. 14, 2023, in Arlington, Washington. (Ryan Berry / The Herald)
Amazon cuts ribbon on colossal $355M fulfillment center in Arlington

At 2.8 million square feet, the facility is the largest of its kind in Washington. It can hold 40 million “units” of inventory.

A computer rendering of the North Creek Commerce Center industrial park in development at 18712 Bothell-Everett Highway. (Kidder Mathews)
Developer breaks ground on new Bothell industrial park

The North Creek Commerce Center on Bothell Everett Highway will provide warehouse and office space in three buildings.

Dan Bates / The Herald
Funko president, Brian Mariotti is excited about the growth that has led his company to need a 62,000 square foot facility in Lynnwood.
Photo Taken: 102312
Former Funko CEO resigns from the Everett company

Brian Mariotti resigned Sept. 1, six weeks after announcing he was taking a six-month sabbatical from the company.

Cash is used for a purchase at Molly Moon's Ice Cream in Edmonds, Washington on Wednesday, Aug. 30, 2023. (Annie Barker / The Herald)
Paper or plastic? Snohomish County may require businesses to take cash

County Council member Nate Nehring proposed an ordinance to ban cashless sales under $200. He hopes cities will follow suit.

A crowd begins to form before a large reception for the opening of Fisherman Jack’s at the Port of Everett on Wednesday, August 30, 2023, in Everett, Washington. (Ryan Berry / The Herald)
Seafood with a view: Fisherman Jack’s opens at Port of Everett

“The port is booming!” The new restaurant is the first to open on “restaurant row” at the port’s Waterfront Place.

Tanner Mock begins unwrapping new furniture that has been delivered on Thursday, Aug. 24, 2023 in Everett, Washington. (Olivia Vanni / The Herald)
In Everett, new look, new name for mainstay Behar’s Furniture

Conlin’s Furniture, based in South Dakota, bought the huge store and celebrates with a grand opening this week.