What Effects Your Credit Score?
Everyone has a credit score, whether they know it or not. Your credit score is used by lenders to asses the risk involved with lending to you. By now, you are probably wondering what your credit score is. Getting your credit score is very easy, and free if you cancel the service right after getting your score. One of the most popular credit score websites is Free Credit Report, you have probably seen one of their obnoxious commercials. The next question is how your credit score is formulated, which is a big secret, but we do know some of the really important factors:
- Payment history (35%). Your score is negatively affected if you have paid bills late, had an account sent to collection, or declared bankruptcy. The more recent the problem, the lower your score — a 30-day late payment today hurts more than a bankruptcy five years ago.
- Outstanding debt (30%). If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score. A low balance on two cards is better than a high balance on one.
- Length of your credit history (15%). The longer your accounts have been open, the better.
- Recent inquiries on your report (10%). If you have recently applied for many new accounts, that may negatively affect your score. Promotional inquiries don’t count.
- Types of credit in use (10%). Loans from finance companies generally lower your credit score. FICO says this is most important when there isn’t a lot of other information upon which to base a score. Although this is a good guide as to what credit scoring companies deem important, keep in mind that some companies may consider different factors.
As long as you keep on top of these five considerations, your credit score should be respectable, and when you need to get financed for a Chevy Camero, new pool and Spa, Apple computer, or mobile home loan, you should be deemed lendworthy.
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