4/3/2013 4:45 PM ET|
5 things that affect your credit
It’s not enough to simply know your credit score. You also need to be aware of the factors that are used to generate it.
Knowing your credit score is an important part of managing and maintaining your financial health, but knowing the score alone isn't enough. It's also important to understand how your credit score is calculated and the key factors that are used in the calculation. Without understanding the core foundation of how credit scores read and interpret your credit report data, you have no way of knowing whether or not your financial habits are helping -- or hurting -- your credit score.
Following are five factors that affect your credit score:
No. 1: Payment history
Your payment history accounts for 35% of your credit score -- more than any other single factor. If you pay your bills on time and never miss a payment, you are rewarded and will do well in this category. If you have a history of missing payments or paying late, you will not.
Negative Traits: Late payments, missing payments, charge-offs, collections, judgments, liens, foreclosures, bankruptcy. If you have missed a payment, or have been late in the past, the best advice is to get current and stay current. The longer you pay on time, and the older the late payments get, the less impact they will have.
No. 2: Debt
Are you carrying a lot of debt? How much do you debt do you owe? Your debt accounts for 30% of your credit score -- almost as much as your payment history. Some debt is good, but too much debt can hurt you -- especially credit card debt.
Negative Traits: High credit card balances, maxed out credit cards, too many accounts with balances -- all of these characteristics point to high credit risk and will negatively impact your score.
No. 3: Length of credit history
How long have you had credit? This factor accounts for 15% of your credit score and looks at your track record of having credit accounts and managing them well over time. The longer you've had credit, the better.
Negative Traits: Very new or recently opened accounts, or little to no history of credit. Unfortunately, the only thing that can build your credit score in this category is time. If you have recently opened an account you'll need to give it time to age before you'll see a positive effect from the account's history in your credit score.
No. 4: New credit
How often you apply for credit accounts for 10% of your credit score. Every time you apply for credit an inquiry will post to your credit report showing that you're actively searching for credit. Excessively shopping for credit and too many inquiries in a short period of time can hurt your score.
Negative Traits: Applying and opening too many accounts in a short period of time. By law, inquiries remain on your credit report for 24 months -- but only inquiries in the last 12 months will be counted in your credit score.
No. 5: Credit mix
The types of credit you have accounts for the remaining 10% of your credit score. This includes credit cards, auto loans, mortgage loans -- and having a healthy mix will insure you score well in this category. Having too many, or only one type of account can actually hurt you in this category. When it comes to credit scores, diversity is key and credit scoring models like to see that you can maintain and manage a number of different types of credit accounts.
Negative Traits: Having only one type of credit account (all revolving/credit cards, for example), having a finance company account or not having a mortgage loan account can all negatively affect your credit score in this category.
Now that you know the core factors that affect your credit score you should be able to use what you've learned to maximize your own credit score. You can use Credit.com's Credit Report Card to get your score and monitor your credit-building progress -- for free. After all, having an excellent credit score can make all the difference in the world when it comes to your personal financial options.
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The credit system is a joke!
I had a score of 816 for a while. No late payments not much debt. Then, my Home Depot & Best Buy accounts (that had a balance of zero) closed after a year or two of no activity. My credit score dropped down to 765. I let them close because I didn't want too much debt open, but realized after it was too late that the FICO people want to see them open, so, the score dropped. Un-fricken believable!!
I will say it here as I tell y wife...
When you want something at the store it's cash and carry. That means if you don't have the cash carry your butt out of the store.
I've had great credit all my life and pretty much been able to acquire anything I need / want. However, it looks like any deadbeat can do the same thing if they are willing to sign on the dotted line for 21% or greater. No frigging thanks. Where I'm at in my life, I only need food, gas and an occasional splurg for a great meal. Got it but ain't gonna waste it. The Federal Government does that for me...
Apparently, the geniuses who wrote this article have never been married, thus leaving out the X-wife factor!
The over-reliance on the great god FICO is preposterous. There have been times in my life where I could have had a low score, but I have never left a bill unpaid in my 58 years.
For example, this article says that having "too much" debt hurts your score. So what about young people and young couples starting out in life? Maybe they are just starting their careers so they don't have stellar income. They are buying homes and cars and having kids and all the attendant expenses that go with that. They are going to have much more debt than what FICO or Equifax might consider "normal". So that makes them un-creditworthy?
Credit scores have become a way for lazy-**** bankers to foist credit decisions on a third-party. It used to be that your banker knew you personally and made his judgements on that knowledge.
Another Completely Worthless article on a completely worthless and fraudulent credit reporting system.
I had Perfect Credit... was making 120K and paying bills ON TIME. I did a routine credit score check one day to discover that my score was in the mid-600's. I was shocked. Surely someone has gotten hold of my identity, or any number of other things that could go wrong. Naturally I did some investigating.
The problem? The four companies I'd been dealing with were in trouble (NOT ME) and began lowering available credit lines - without my knowledge, thus making it appear that I had 'unusually high balances' toward available credit.
So YET AGAIN -MSN forgot to mention the one, all-important factor affecting your credit score:
Pay your bills ON TIME ... Play by the rules... Do everything RIGHT - and watch your credit score go in the toilet.
So another completely Out-0f-Touch, Waste-of-Time article, based on a completely incorrect premise... Brought to you by msn.
I'm up to my a$$ and elbows in debt, but
I feel so important and superior to all the miserable unfortunates who've lost their jobs, homes and automobiles.
There are some truths to this and some very broad suggestions. Coming from someone who has had great credit, got my @ss handed to me and taken out by the knees when the market tanked and has begun rebuilding my credit I can tell you specifics and falacies coming from experience.
For starters a 'good mix' of credit. A good mix of credit is 2 installent loans: a loan that when its paid off is paid off and cannot be used again i.e. a car loan. And 2 revolving tradelines: a tradeline that can be used, paid off and reused again. i.e. credit cards and USE THEM.
A common mistake is people get a credit card and hold on to it and do nothing. Thats exactly what that card will do to your score- nothing. Maybe even hurt it.
Establishing credit is all about establishing positive transactional history. Use the card for a tank of gas or groceries and pay it off. Month after month and keep your balance at 30% or less of the available credit. As an example: you have $100 available credit - dont spend more than 30 bucks at a time.
Get a secured line of credit. Walk into your bank with $500-1000 or whatever you can afford and let them know you want a secured loan against your money. Theres no risk to them because they have your money. Make payments on it until its paid off. Establishing or building credit will cost you money. Theres simply no way around it.
Have a significant other, friend or family member with good credit? Ask them for a favor! Ask them to add you on to a credit card that has positive transactional history as an 'authorized user'. Whatever credit history they have established on their credit will report to yours as if you've had the card as long as they have and your credit score goes UP virtually overnight and they dont ever have to give you a card!
If you must close out an account after its been paid off, specify to the creditor that it's listed on all 3 bureaus as 'closed by consumer'. If you don't you run the risk that it's listed as closed by 'grantor'. Anyone looking at your credit in the future will want to know why was it closed by the grantor? Were they late? Slow pays? Charge off?
Think like a creditor. If you were taken out by the knees and are on track or want to be to establishing credit LET THEM KNOW. Write a good faith letter explaining why your credit took a dip in the last year or however long!
A credit decision sadly sometimes comes down to how someone aka the underwriter feels on that particular day. If they see a common sense underwriting scenario they're more likely to grant credit. Example: I see the borrower went through a divorce and in the last 6 months has made his payments on time and that turmoil in his life seems to be over. Without a letter all the u.w sees is a bunch of bad credit without explanation. Was this guy lazy? unemployed? etc. etc. etc.
Challenge bad credit. You're entitled to by law! Look for discrepancies. Want to stop a credit collector? Did you know you can send them a cease and desist letter? Ask them to send you a letter of validity. Watch how fast they stop calling.
Get a secured credit card like First premier bank. Won't be much for credit like $250 bucks but its a start to restablishing your credit and if like everything else in life, if you're simply too busy- hire someone to help you clean up your credit. There are a ton of reputable companies out there and the one i've selected after my due diligence was U.S. Credit Consulation. Google them. You'll appreciate their candor and efficency. They're easy and cheap and will save you literally thousands in interest. It will pay for itself and quickly.
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