Credit Score Breakdown Is No Big Mystery
Do you feel as if your credit score rating is some big mysterious secret? It is true that millions of folks do feel that way, and really, the credit bureaus do not readily give out the exact way that they compute your credit score, but you need not fret. It definitely makes sense to have a pretty good understanding of how your credit score is calculated so you can take the appropriate measures to establish and maintain a “good” score.
If you have absolutely no idea how your rating is determined, how can you possibly know what to do and what not to do? If you were taking a class in earth sciences, you would not be expected to take a test on psychology, right? Of course not; you can only expect to know what you have learned; the same is true of your credit report. You have to know what information is used to determine your score if you are going to gain control of your credit history and make the appropriate changes.
So, here is a pretty good credit score breakdown that you can use to make your financial decisions:
• Mixture of credit. Having a variety of loans and paying them back as agreed counts for ten percent of your credit score. If you have different types of debt, such as a mortgage, a car note, and credit cards, and you pay them all well, that is indicative of your ability to handle different kinds of loans well.
• New credit inquiries count for ten percent of your score also. The more people (organizations) that go looking into your credit history, the more your credit score will be negatively affected. The exception is you looking into your own report. That has no impact on your score.
• The length of your credit history counts for fifteen percent of your score. The longer you have had credit, the better. Of course, having credit for a long time and not paying responsibly is no help at all.
• How much you already owe counts for thirty percent of your rating. This is called the debt-to-income ratio, and the number should be low. Keeping the total amount of money you owe at or below twenty-five percent of your income will generally get you big cheers from any lender.
• Your payment history is the most important factor in determining your credit score. It counts for a whopping thirty-five percent of your rating. That is both good and bad. If you have always been very careful about making your payments on time, even if you have had a pretty high debt-to-income number, you may be seen as a decent credit risk. However, if you have even one late payment, your report may be lowered significantly.
There is no more mystery; if you want to establish a positive credit score, pay the most attention to keeping the amount of debt you hold less than about thirty percent of your income. Also, pay your bills on time. Don’t apply for credit unless you really are serious about wanting or needing that particular credit so that you don’t have too many inquiries into your file, and if you only have one kind a credit – say a car loan – consider getting a credit card with a tiny maximum and pay it regularly and consistently for a long time.