Hey, everyone, and welcome to another post from Affiliate Training Now. In this post, you will learn how to manage and maintain your credit with 5 chosen examples. You may have landed in this post because your wanting to strengthen your credit scores to purchase your first house, in this, you will want to learn how to make your credit go up fast especially with the small amount of time we have here on earth to live. Equally as important to that is learning what makes your credit score go down because this is what stops people from doing many big things on earth.
This post is on credit scores. If you are interested on what makes up a good credit score, also how to make your credit score go up (fast), this post will show you. It will also show you the opposite, which is what make a credit score go down so be sure to read everything as you will find really useful answers.
A credit score can range from 300 (very bad) – 800 (great), but most credit card and loan companies use FICO as the model to determine creditworthiness. FICO (which stands for Fair Isaac Corporation, an amalgamation of the two founders’ last names) is responsible for 90% of lending decisions in the U.S. Having a good credit score carries the weight of many factors in the credit process, including the interest rate you receive, whether or not you receive the loan at all, and even reliability on a job interview. And because of the weight that the FICO score holds, it’s important to know which 5 Factors affect your score the most. Let’s break down each factor and see where you may have opportunities to improve.
This is the single most important factor in your score. It accounts for 35%, over a third, of your total score that lenders use to gauge your credit. Payment History asks the simple question of whether or not you’re paying your bills on time, every time. Tommy Lee, a principal scientist at FICO, had this to say about paying your credit card bills on time, “FICO scores consider the frequency, recency, and severity of reported missed payments”. This includes loan payments on homes and cars, as well as your standard credit card payments. And neither carries more weight than the other. A late mortgage payment is just as bad as a late Credit Card payment.
This factor refers to the amount of credit you are using against your balance, and it accounts for a whopping 30% of your total score. A general rule should be 30% of your total available credit. Essentially, keep the balances across all your cards under 30% of the available balance. The amount you have borrowed against your credit limits is a huge factor affecting your score. Carrying high balances can be an indicator that you can’t handle your debt responsibly, and therefore you are a much higher risk. And that translates to a lower overall FICO score and possibly higher interest rates on new cards in the future. These first two factors carry 65% of your score, having low balances and paying on time will get you almost all the way to a great score.
Length of Credit History
How long has each account been open? Taking the oldest and newest accounts and dividing them by the total number of accounts determines how long you have a credit history. It’s an average that is used to calculate your creditworthiness. The Fair Credit Reporting Act, passed in 1970, said that 7 years was a reasonable amount of time for negative credit history to be removed from a credit report. It also applied to new credit, which is why those with a new credit history may also have trouble establishing history within the first 7 years. Length of Credit History will account for 15% of your score and will be an easy part of your recovery if you’re looking to fix your credit. Utilizing your credit responsibly on long-standing accounts shows a history of your financial behavior and helps paint a better picture of your creditworthiness.
Applying for new credit cards as needed should not affect your score as much as applying for multiple cards at the same time. This may suggest that you are in financial trouble, and possibly a greater risk. Each time you apply for a new line of credit, it makes a hard inquiry against your credit history. This inquiry can last up to 24 months on your credit report. And even though its impact will lessen over time, the knock against your score is still present. Applying for new credit accounts for 10% of your total score, and ties directly into using the longstanding accounts, paying on time, and keeping your balances down.
The final piece of your credit puzzle is how many different forms of credit you’re utilizing. This can be a mix of Home Loans, Car Loans, and standard-issue Credit Cards. This mix determines how you balance your credit and you’re spending ability against what is available. Think of this as a light combination of all the criteria listed above. A way for creditors to gauge your spending habits, and how fiscally responsible you might be. People without credit cards are considered higher risk than those who have various credit streams but also pay on time. Trying to get a diverse credit mix may also negatively affect your score simply because not all loans get reported to the credit bureaus. And if you have a credit card or loan with a bad history, closing it will not fix the problem. The negative report stays with you for seven years.
Having and keeping a great score is not out of reach. There is $13.86 trillion (with art) of consumer debt in America. This all student loans, credit cards, auto loans, and even mortgages. Credit card debt alone was responsible for $1 Trillion, showing how much trouble we may be in without education and the proper tools. Knowing what effects your credit score is the first step in fixing problems you may already have or avoiding the pitfalls of new credit. It takes time and discipline to maintain great credit, but it’s not impossible.
Debt consolidation companies have become big business in helping families bring their debt down to manageable levels. They work with consumers with various tools to bring multiple credit card loans together, under one lower monthly installment to help drive balances down. And while there may be a hit to your credit initially after consolidating your debt, the long-term effects will actually raise your score, assuming you don’t amass more debt. The internet is filled with resources to help you find these companies, explore your options, or just get educated about your financial health in general. The first step in helping yourself raise that score is understanding what the factors mean. Once you’re armed with that knowledge, you can better work towards raising that score.