WHAT IS A CREDIT SCORE ?
Updated: Feb 7, 2020
There are many things to take into consideration when building your credit score that many people either don't know or do incorrectly. Once you understand what a credit score is and how it works, you'll feel better reading this post before signing a new loan or opening up those new credit card offers in the mail.
According to the FICO Scoring model here is the 5 main elements that make up your score.
1. Past Payment History ( about 35% of your score)
It's best to have few late payments and even better to have NONE. However, if you have a few we can help you remove them and we can even work to have your late payments appear as current.
2. Credit Use (about 30% of your score)
We can't stress this enough! Your balances are what can fluctuate your score from month to month very easily. How? If you keep charging your cards to the maximum limit or keep charging over the 30% threshold the industry will set to look irresponsible. You'll see your credit score take a hit, and it may not rise much at all no matter how many on time payments are made until you reduce your overall balances. Instead of loading up on one card for all expenses, you should spread out your usage and stay below the 30% threshold. If possible, stay under 10% utilization.
3. Length of Credit History (15% of the score)
Many clients fantasize about an 850 credit score. This score takes years of positive credit history to reach. However, with good habits over time, you can see a positive impact. You should try to maintain open credit card accounts open as long as possible. The longer you keep your credit accounts open and in good standing, the better you look to credit lenders.
4. Types of Credit Used (10 % of your score)
The average credit card or line of credit from your local bank will always look better on your report than a finance company account from let's say Joe's Vacuum Cleaners. Why? Well Joe is not exactly the guy that wants to say no to any sale and therefore, he doesn't set his standards as high as your average loan or credit card account. Aim for having 2 credit cards and a loan account to start. Don't have a loan account? Take into consideration SELF today and you can have a line of credit account that will report to all 3 credit agencies.
5. Inquiries (10% of your score)
Sometimes people go on a rampage for credit card approvals. People at times become desperate for money because they have none and their cards are already maxed out. When you go in search of any type of credit, you will be more likely to see your credit score take a hit. However, if you are looking for a car loan or mortgage loan, the credit reporting agencies are supposed to count the inquiries during your buying period as one. Keep in mind that usually when one shops for an auto loan, one should be prepared for the wave of inquiries on your credit report.
Credit Freedom Experts can help you bring your credit scores up again if you feel like any of these categories are affecting your score. We offer the advice and tools to get you where you would like to be credit score wise. Having a low credit score can cost you thousands a year in higher interest rates, and a lot more over your lifetime. Save your money and call us today, or sign up online for a free credit consultation.