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Figuring Out the Ever Nebulous Numbers Called Credit
Scores
Credit Score Factors
The information contained on our credit reports affect every
aspect of our lives; including employment, insurance, and even
interest rates (mortgage, credit cards, automobiles, etc.). There
is specific information captured on our report which is used to
form our credit score:
? Payment History (accounts for approximately 35%)
? Outstanding Debt (accounts for approximately 30%)
? Length of Credit History (accounts for approximately
15%)
? Types of Credit Currently in Use (accounts for approximately
10%)
? Recent Inquiries (accounts for approximately 10%)
Payment History - Your payment history includes the following
types of specific Information:
? Account payment information on specific types of accounts
(credit cards, retail accounts, installment loans, finance
company accounts, mortgage, etc.)
? Adverse public records (bankruptcy, judgments, suits, liens,
wage attachments, etc.), collection items, and/or delinquency
(past due items)
? Severity of delinquency. The more recent the problem, the
larger the impact on your credit score.
? Amount past due on delinquent accounts or collection
items
? Time since and frequency of past due items (delinquency),
adverse public records, or collection items
? Number of past due items on file
? Number of accounts paid as agreed
Outstanding Debt - Your credit score is adversely affected if
you owe amounts at or near your credit limit, so if possible,
split the balance and transfer some of the debt to a second card.
A low balance on two cards is better than a high balance on one.
(Credit card companies usually charge a 'transfer' fee, but
'reward' you for switching you debt by offering a low interest
rate. Sometimes the interest rate offered is for an introductory
period only, so make sure you read the fine print before
transferring your debts.)
? Amount owing on accounts
? Amount owing on specific types of accounts
? Lack of a specific type of balance, in some cases number of
accounts with balances
? Proportion of credit lines used (proportion of balances to
total credit limits on certain types of revolving accounts)
? Proportion of installment loan amounts still owing
(proportion of balance to original loan amount on certain types
of installment loans)
Length of Credit History - The longer you have maintained your
accounts, the better it reflects on your credit report.
? Time since accounts opened
? Time since accounts opened, by specific type of account
? Time since account activity
Types of Credit in Use - Loans from finance companies
generally lower your credit score. According to FICO, this is
heavily relied upon when there is little other credit history
upon which to base a score.
? Number (or amount) of different types of accounts (i.e.
installment loans, credit cards, retail accounts, mortgage,
consumer finance accounts, etc.)
Recent Inquiries on Your Report - Recent applications for
several new accounts may negatively affect your score. If you
inquire about special promotions it does not affect your credit
report.
Now that we know what factors the credit bureaus consider when
calculating your credit scores, you might be saying to
yourself... yeah, yeah, I've heard all that before. Tell me
something I don't already know, like how I can raise my
score!
With that thought in mind, pay your bills on time. If you have
recent late payments on your credit report, lenders view this as
you larger credit risk. When you get your bills, don't let this
sit on your kitchen table collecting dust. Keep a log of your
current bills by due date and the total amount due. Having a late
payment appear on your credit report today can have a larger
impact on your credit score than filing bankruptcy five years
ago!
Manage your credit effective, and don't say... "Duh, that one
is obvious". I am definitely stating the obvious here. However,
one of the most common ways for consumers to get into a downward
spiral credit wise is the poor choices we all have made using the
unsecured portion of our credit; CREDIT CARDS. Credit cards do
offer immediate relief (or often time's instant gratification) to
our needs (or wants). Don't go out buying luxury items if you
don't have cash readily available to pay for those items when the
bill comes due. That means saying "NO" to plasma screen TV's, new
furniture, Gucci watches, and all the items that we "simply can't
live without".
Anytime you run a balance on an unsecured credit card or line
of credit, it has an impact upon your credit score. By focusing
on keeping the balance you carry on your credit cards / lines of
credit to less than 25% of your total line of credit, you will be
in better shape regarding your credit score.
For more information regarding your credit scores, credit
reports or debt options currently available to you, please
contact Gateway Credit Connection or visit us online at
http://www.creditmonkey.com
Michael Goff is the Co-Founder of Gateway Credit Connection,
helping empower consumers to take control of their personal and
business finances.
Gateway Credit Connection 15770 Dallas Parkway Suite 1100
Dallas, TX 75248 469.547.4323 Visit us online at http://www.CreditMonkey.com
MORE RESOURCES:
Credit - Google News
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