We throw the word “credit” around a lot.
But do we all really understand what credit is? What it’s based on? How it can be both beneficial
and detrimental?
The answers to these questions will provide you with a better understanding and will also be an
excellent guide for you to follow.
There are 5 major categories that determine your score and each has a different percentage of how it
is considered in the equation:
- Payment History:35% of the score is based on the payment history of all of
your credit cards and loans which you have been responsible for, including a car or student
loan. Any late payment is recognized and will negatively affect your score.
- Amount that is owed:30% of the score is based on the total amount that you
owe. Special attention is given to the actual percentage of credit that is used on revolving
credit cards.
- Length of credit:15% of the score is based on the amount of time that the
account has been open in addition to its frequency of use.
- Types of credit used:10% of the score represents the “types” of accounts
you have; for example, revolving or installment.
- New Credit:10% of the score relates to credit inquiries and the number of
recently opened accounts.
As you read #5, you might have now become concerned that your credit could be affected while you are
searching for a mortgage with multiple lenders. The good news is that while you are in the process
of looking for the right loan, your credit can be pulled multiple times within a 30 day period and
it will all be considered as only one transaction.
A few rules to keep in mind:
- Pay your bills on time.
- Keep the balances as low as possible.
- Establish a history of consistent payments over a length of time and limit the number of new
credit cards you open within a short time span.
Following these guidelines is a sure way to managing your own credit score & produce successful
results.
