Score Boost: A 90-Day Plan to Clean Up and Raise Your Credit Score

How Your Credit Score Really Works

You filled out the application, waited, and got the answer you were afraid of. Maybe it was a car dealer who came back with a 19% interest rate and a speech about "your situation." Maybe it was a landlord who said the unit went to someone else, and you are pretty sure you know why. Maybe it was a credit card company that sent a letter so vague you could not tell what you did wrong. Whatever happened, you are holding a number somewhere between roughly 500 and 670, and that number is costing you money, options and some dignity.

Here is the good news, and it is not a pep talk. Credit scores are calculated by formulas. Formulas respond to inputs. Once you know which inputs matter and how quickly each one shows up in your score, you stop guessing and start working a plan. That is what this guide is: a plan, built on how scoring actually works, with templates, scripts and timelines you can use this week.

This first section explains what happened when you were denied, what a credit score really is, and which of your many scores the lender looked at. Everything else in the guide builds on it.

What actually happened when you were denied

When you apply for credit, the lender usually pulls a credit report from one or more of the three national credit bureaus: Equifax, Experian and TransUnion. It then runs a scoring model on that report, and often combines the score with its own rules about income, debt load, job history and the size of the loan.

If the lender denies you or gives you worse terms because of something in your credit report, federal law (the Fair Credit Reporting Act, usually called the FCRA) requires it to send you an adverse action notice. That notice is far more useful than most people realize. It should tell you:

1. The name and contact details of the credit bureau that supplied the report.
2. That the bureau did not make the decision and cannot explain why it was made.
3. Your right to a free copy of that report within 60 days.
4. Your right to dispute inaccurate information.
5. If a credit score was used, the score itself and the key factors that hurt it (often up to four or five reason statements).

Those "key factors" are gold. They are not a lecture. They are the scoring model telling you, in coded language, where you lost the most points.

Action step: Find every denial or "risk-based pricing" letter you received in the last year (the dealer, the card issuer, the apartment screening company). If you threw them away, call or log in and ask for a copy of the adverse action notice. Write down the score, the bureau and every reason code listed. You will use this list in Chapter 2.

Decoding the reason statements

Reason statements sound vague, but each maps to a specific factor. Here is how to translate the common ones.

| What the letter says | What it usually means | Where it is covered | |---|---|---| | "Proportion of balances to credit limits is too high" | Your credit card utilization is high | Chapter 4 | | "Serious delinquency" or "Delinquency on accounts" | Late payments, collections or charge offs | Chapter 3 | | "Too many inquiries in the last 12 months" | Recent hard pulls from applications | Section 1.3 | | "Length of time accounts have been established" | Your credit history is young | Section 1.3 | | "Too few accounts currently paid as agreed" | Not enough positive accounts | Chapter 5 | | "Lack of recent revolving account information" | No active credit card reporting | Chapter 5 | | "Number of accounts with delinquency" | Several accounts carry late marks | Chapter 3 | ...