Calculating your Credit Score
5 Key Factors that Determine your Credit Score
Everybody has a credit score. From the moment you open that bank account until the moment you die, your credit score follows you through good and, unfortunately, bad. Many of us have fallen on hard times in this volatile economy due to job loss, misuse of credit, shortage of funds, etc. As you go on in life, you begin to realize just how important credit really is. Where was Credit Score 101 in high school?! Really, how many of us really benefited from wood shop class and Home EC?
Sadly, your credit has been deemed as something that you just have to figure out the hard way, and the more and more I talk to people, the more I realize that this industry is full of trial and error. How do you avoid falling victim to credit card debt? One of the most important and fundamental steps is to understand how the bureaus calculate your score.
1. Make Your Payments On Time
Delinquent accounts make up 35% of your score and are by far the most important factor in calculating your credit. Even missing 1 payment on a card that has been opened for years can stay on your report for 7 years. The first 2 years, your score can drop dramatically due to that one missed payment.
2. Revolving Credit
Credit cards. Many of us think, “I’ve seen the harm that credit cards can do, therefore, I’m not going to take out any credit cards and just pay cash!” Good start, but without those revolving accounts, your scores do not increase, because there is nothing to propel those numbers forward. DO NOT take out too many cards and DO NOT max out the balances (don’t even get them close to the limit). Only a few cards are needed to really see results. Remember: credit cards should never be used as a means to get by.
3. Credit History
‘Let by-gones be by-gones’ unfortunately is not a phrase the credit bureaus believe firmly in. 15% of your score is calculated by your credit history. The good news is that there is a stature of limitation, so eventually, bad credit will fall off. Start building your good credit so that those positive accounts never get removed. The more positive accounts there are from your past, the higher your scores can grow!
How are you viewing your credit report? Who else is requesting your report? There is what we call a hard pull and a soft pull. Every time you apply for a credit card, have a loan officer or a Realtor pull your credit report, it is a hard inquiry, aka. “hard pull”. When you request to view your report yourself through a 3rd party consumer monitoring site (those credit report commercials you see on TV), it is a consumer inquiry, “soft pull”. A hard pull affects your score approximately 5 points, while soft pulls do not affect your score at all.
5. Mix of Credit
How many accounts you have with different creditors. The bureaus like a little bit of variety. Be careful not to overdo it or to bite off more than you can chew.
A Helpful Tip from:
Credit 360 Consulting
1306 E. 7th Street
Austin, TX 78702
If you want to know more about Credit Repair Services Austin, visit the Credit 360 Consulting Services.