Thursday, September 17, 2009

What Goes into Your Credit Score?

It seems like some kind of mystery.  How DO they figure out your credit score anyway?  Until recently, the calculations were fairly well guarded.  Yesterday, I took a class that gave an estimate of how it is figured. 
Being the mommy of a 9 year old, and a former teacher, I like to advocate SHARING!  So, here it is:

Payment History= 35%
  • Pay your accounts ON TIME, even if it is only the minimum.  You can usually sign up to pay the minimum automatically online.  This ensures that a payment is recorded on time every month, even if you still mail paper payments of any amount.  Most of us have experienced going out of town and forgetting to mail your bills...  this takes care of those "oops" moments.
  • Length of Positive Credit History. The longer you have your credit and pay it on time, the better
  • Severity and Quantity of Delinquencies. 
Amount Owed= 30%
  • Quantity of Credit Accounts.  Too many credit cards with balances can lower your score.
Length of Credit History= 15%
  • The longer the better
  • How long have your credit accounts been established?  It can take 6 months to a year to establish a payment history on a new credit card.  Until that time, it is a negative against your credit history because it is unestablished.
  • How long has it been since you've used your accounts?  If you have many cards that you never use, this can count against you.  Unfortunately, suddenly closing a bunch of accounts is not a good idea either.  Ultimately, you should have 3 cards that you use, and pay, regularly.

New Credit= 10%
  • Opening several credit accounts in a short period of time is a greater risk- especially if you have not established a credit history.
Types of Credit in Use/Having a Healthy Mix= 10%
  • 2 Intallment Loans (eg. Car payments)
  • 3 revolving Credit Accounts with balances
  • Balances on revolving debt below 30% of the high credit (credit limit)
  • No collection accounts
  • No public records
  • No foreclosures
  • No late payments
Coming Next:  Tipping the Scales in YOUR Favor

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