What Makes Up Your credit score?
Paying your bills on time is obviously an important piece, but there is MUCH more that goes into your score. Here you will learn about these factors. You need better control your credit report and score to avoid the embarrassment of being declined credit. This is important for a home purchase. Or so that you can get the vehicle when you need it without a crazy high-interest rate!
Here is How Your Score is Made Up:
35% – Payment History (192 points)
Pay your bills on time. Late Payments, Collections, and Chargeoffs negatively impact you in this section of the score. Make a plan to ensure things don’t fall behind and/or go into collection status. If you have collections, there are specific ways to approach those items to ensure you do not cause further damage to your credit score and report.
30% – Credit Usage (165 points)
Given the scale for most score calculations, or algorithms is 300-850 — a 550 point scale — 30% accounts for 165 points of your overall credit score. The amount of these 165 points is based entirely on your balance-to-limit ratio on each individual card. Ideally, you want to have each individual card’s balance below 30% of the limit. For instance, if you have a credit card with a $1000 limit, you would want to keep the balance below $300 in order for that card to not negatively impact your credit score. Above 30% you begin to lose points. Once you are above 50% utilized more points are removed. Above 70%, more. And above 90% you are losing the full potential of that card.
15% – Length of Credit History (82 points)
Length of Credit History takes into consideration the AVERAGE of all OPEN accounts. To be optimal in this section of the score you would want to have approximately a 10 year average of open credit. Or more. Hence, why do you never want to close a credit card that you have had open for a long time?
if you have a 20-year-old credit card on your credit report and the only other thing you have open is a 2-year-old car loan — your average of open credit is 20 (credit card) + 2 (car loan) = 22 years DIVIDED by 2 (total open accounts) = 11 Years!!! You are good to go.
If you close the 20-year-old credit card you would be left with only the car loan and your average of open credit would be 2 years. Not optimal and you lose potentially up to 70 points in your credit score. One thing to also consider is that if you are going to make a larger purchase like a home loan and want to ensure your credit score is as high as possible going into the home loan process, you would not want to purchase a vehicle just prior. That new OPEN account would lower your average of open credit and your credit score. Not to mention, car dealerships are notorious for pulling your credit a whole slew of times which also lowers the score. We’ll discuss that more in the next section.
10% – New Credit/Inquires (55 points)
Anytime you open up new credit your score will take a slight hit. Hard inquires (when a 3rd party views your credit) will knock 2-5 points off of your score.
That is why we recommend Identity IQ. They won’t hurt your credit when you pull your report and they give full account information on ALL 3 bureaus. This is important when you are working to improve your score.
Credit Karma is a great free monitoring tool but it’s worth the small investment in IDIQ if you are serious about fixing your credit.
There are 3 types of positive credit: Installment, Revolving, and Mortgage. In a perfect credit scenario, you would want to have 3-8 revolving accounts (credit cards), 2 installment accounts (car loans, student loans), and a mortgage. That would give you a balanced credit report and the ideal profile to be optimal in this “Types of Credit” section. But don’t rush out and open or close accounts in an effort to optimize this section as it may hurt you elsewhere. There are a lot of “Catch 22’s” when it comes to efforts to get your score in the ideal spot.
As Always…here’s how you get started.
Tap or click here to get your $1 credit report.
We’ll need it to do your credit analysis.
This is for a $1 seven-day trial.
You can cancel it in the first seven days if you want, but we need this as a first step, in order to help you.
You will get a login and password for IdentityIQ when you set up your $1 trial.
Go to this page on TheCreditMovement.com.
Share your username/password for IdentityIQ in the form on the page.
We are here to help you buy a home. We will introduce you to a lender once you will qualify for the loan you want.