Do You Understand Your Credit Score? Don’t Lie To Yourself

Credit ScoreFirst of all, there is a different rating system for different industries. For a car loan you can top out at 1000. For a home mortgage, it’s 900. The algorithms are a mystery, but a few things have been deduced. Here’s what we know, your score is weighed like this:

35% of your score is based on payment history. The number one thing you can do to improve your credit score is to make your payments on time. On time from a credit point-of-view is less than 30 days late. If your payment is due on the first, the bank will charge you a late payment if you pay after the 15th of the month. They will not report it to the credit bureaus until it is 30 days late. You can make your payment late but never let it be 30 days late.

30% is based on the amount owed. This is not the total amount owed. This is the percentage owed against the credit limit. The magic number is 30%. So if you have a credit card with a $10,000 limit, to obtain the biggest credit juice you can’t owe more than $3,333.00 on it. Lately, if you are late, even 1 day, the credit card company may reduce your credit limit down to what you owe. That act alone will damage your credit score.

15% Length of credit history. This is why you don’t close out those cards you don’t use and have had for years.

10% New credit. You don’t want to be applying for credit repeatedly. You get docked, but truthfully, not as much as any of the above.

10% Types of credit used. Real estate at the top end, consumer credit bottom.

You know there are 3 reporting agencies. Experian, Equifax, TransUnion. You are entitled to a free credit report once a year or when you are turned down for credit. A better option is to sign up for a credit service that emails you any changes to your credit report.  They cost $10-20 a month and are well worth it, considering the identity theft risks that exist today.

Have you ever paid a payment late when you have the money and just didn’t get around to it. Don’t do that anymore. Credit scores play into much more than when you want to borrow money. They play in to security clearances and employment too. Keep your credit clean if it is, and if it isn’t do everything you can to clean it up. It won’t take as long as you think. If you have questions, google it, or talk to me.