Credit Scoring Information & Tips:

What makes up a credit score:

  • 35% - Payment history:  the record of your on-time and late payments
  • 30% - Available credit:  this is the relationship of balance to credit limits as a percentage.  The lower the percentage, the better the score.  This is the most unknown fact in scoring as a lot of customers either close all cards or have maxed out cards which both are very negative on a report
  • 10% - Type of credit:  mortgages, installment loans, revolving accounts.  Having a good mixture of each
  • 10% - Number of inquiries:  records of inquiries logged when you apply for credit.  Inquiries in the last 6 months affect you more than inquiries from 6 – 12 months ago
  • 15% - Length of history:  the time elapsed since each account was opened.  The longer you have accounts opened, the better this category will be.  So it is better to have accounts such as credit cards for a very long time rather than open and closing accounts constantly.

Improvement Tips for credit scores:

  • Pay down credit card balances to under 10% - 30% of their limits
  • Make sure your credit card company reports a limit.  If they do not and you have a $100 balance, it appears you are over the limit even though you may actually have a $10,000 limit
  • Make payments on time
  • Check your credit for errors.  Errors are very common in credit reports

Common Credit Myths:

  • Paying off collections will help your scores – In the short term this could actually lower your score. 
  • Once you pay a collection, charge-off, or tax lien it no longer impacts your credit score.  It actually just shows it is now a paid collection, etc and that is if they update correctly
  • Multiple inquiries pulled at once in the same industry will not have a negative effect on your credit score.  It actually can effect one of your bureau scores each time it is pulled potentially.
  • Since I pay my bills on time I should have perfect credit scores.  That is only 35% of a credit score.  Pay attention to the other factors and watch for erroneous information on the reports.
  • If I have a bankruptcy, short sale, foreclosure, etc, I can get a loan for 7 years.  If someone goes through these but re-establishes credit correctly, credit can be obtained at great rates in only 2 – 4 years.

 

Contact Russell Smith with Prime Lending with any questions or if you are in need of credit repair. rdsmith@primelending.com