Here's the elements
which make-up your score... Understanding
how your credit score is determined is the first step in establishing a healthier,
higher credit rating. Scores range from 300 to 850 - with a score of 750 or higher
usually resulting the best interest rates. The
most widely used method was developed by Fair Isaac Corporation known as the FICO
score. While the exact calculation
of this number is not known, understanding the general catgories that make-up
your FICO score will help you improve or maintain the highest rating possible.
There are five major elements related to your credit activities that make-up your
score: 1.) Your Payment History
(35%)
Paying your bills on time is the most important factor when your
credit score is tabulated. A history of late payments will cause more damage than
a single error making a late payment. 2.)
Your Outstanding Debt (30%)
The second most important factor that is looked
at when your credit score is determined is the debt you owe compared to the amount
of credit available to you. If you're reaching or exceeding your credit limit,
lenders see a potential risk of non-payment. A safe target is to maintain a debt
percentage of 50% or less of your available credit. For example, if you have a
credit limit of $2,000 and have borrowed $1,500 of that limit you have used 75%
of your available credit. Either consider opening a new credit account or pay
down some of your debt to bring it in align with the 50% goal. 3.)
Length of Credit History (15%)
The more time you've been using credit
responsibly-- the more value this factor will have on your score. Not only the
age of an account is considered but the last time it was used, as well. Having
idle cards hanging around does nothing to raise your score regardless of their
credit limit. 4.) Types of Credit (10%)
Credit cards are only one form of credit that are influential in determing
your credit score. There is a positive affect in using different types such as
home mortgages, car or personal loans. More is not necessarily better, though,
unless you can use credit responsibly. 5.)
Credit Inquiries (10%)
Every time you apply for credit, an inquiry is
posted on your credit report. The more often you apply the higher a risk you are
considered and it may hurt your score. If you accept too many offers, there's
a fear you'll use the available amount and undermine the calculations used to
determine your ratio of debt of 50% or less. A balancing act is required in this
area. The trick is to only accept enough credit to fulfill your financial needs.
Most negative items on your credit report
will be deleted after seven years. Bankruptcies remain for tens years and tax
liens or judgements held against you remain for twenty years. You
should get a copy of your credit report / credit score once a year. Find out how
you can get a FREE COPY of your credit report
here.
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