Credit Score 101 – 1

New credit accounts for 10% of your FICO score.  Now this means the amount of new credit applications, including the amount of recent hard inquiries and the total amount of new accounts you’ve opened in the last 60 to 90 days.

Your payment history accounts for 35% your score. Work toward consistently making ‘ontime’ payments for both revolving loans, such as credit cards, and installment loans, such as student loans, with the intention to improve this piece of your credit score. Payment history includes your account payment information, similar to the total number of accounts you’ve paid on time and any payment delinquencies.

Therefore, it’s smart to develop a plan to meet a debt payoff goal.  A great credit score can make all the difference when you’re attempting to purchase a brand new car, apply for an apartment rental, or buy your first home whatever your goal it’s one way to tell lenders, creditors, and sometimes even potential employers how well you’ve handled your financial responsibilities in the past.  Lower one suggests you should be a higher risk, and a higher score suggests for the most part there’s reduced risk in offering you credit.

Lenders might consider other factors if you have no credit history, like bank accounts, employment history, and residence history. You might consider building your credit with a secured bank card which uses money you place in a security deposit account as collateral or a secured loan a loan in which you offer an asset as collateral.

Applying for a high number of new credit accounts over a short time span can negatively impact your score.  Apply for new credit only when it makes financial sense for your situation and goals, rather than responding to any card offer with a low introductory interest rate.  Lenders might see this as a sign of risk.  If you are denied, make sure to work on improving your credit score before you apply again.

The factors that influence your credit score vary slightly relying on what company you ask. Every of the three major credit bureaus Equifax, Experian and TransUnion calculates its own score on the basis of an unique algorithm.  Your score from any bureau will often differ, while these scores are typically depending on the FICO scoring model.  However, having loads of kinds of accounts types, just like credit cards, home loans and retail accounts might tell lenders you’re less of a credit risk. Different kinds of credit types you use make up 10% of your FICO score.  You can potentially improve your score by opening new kinds of accounts types but only apply for credit when you need it.  Never apply for credit purely for the sake of improving your score.  It is lenders might view you as a higher risk.  I’d say if you tend to max out credit cards or come close to your credit limits every month.

The amount of the debt you have accounts for 30% of your credit score.  Ideally, you want to keep your balances below 10% of the total available credit.  For every percentage increase in debt, the score drops a few points.  The higher the percentage is, which means the more you owe, the score drops more.  It’s also helpful to learn how long it might take to pay off a bank card before you drive up your balances.  Maintain credit card balances that are low in relationship to the available credit, and pay bills on time, to improve this credit score factor.

Bankruptcies can appear for up to 10 years,  Generally, public records can remain on your report for seven years. Like bankruptcies or judgments, your payment history also lists adverse public records.

The length of your credit history makes up 15% of your FICO score.  This includes how long your accounts are open and the time since your last account activity.   Longer credit history gives lenders a better idea of your ‘long term’ financial behavior.  It can be beneficial to maintain your longest standing accounts rather than closing them and opening new accounts, if you have a short credit history.

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