Keeping Score (With your Credit)

Your credit score.  It seems to determine everything these days from buying or refinancing a home to getting a good rate on insurance to getting a job.  But how is that score determined and what can you do to raise yours?  It's pretty widely known that credit scores range from a low of 350 to a high of 850.  For a mortgage you need a minimum score of 620 and for a the best rates and terms you need it to be over 720.  Here's a breakdown of what goes into your score along with some tips to keep that score as high as possible. 

These percentages are approximate values of each aspect of the score:

35%: Your Payment History

This one's pretty obvious; do you pay your accounts on time.  It also includes how many times you've been past due on an account and how long it's been since you've been deliquent

Tips:

• Always try to pay your bills on time
• If you're currently past due, try to get current
• ***Here's one you might not know:  If you've got small collections that have been on your report for a while, it might hurt you to pay them off (at least before you apply for a loan).  Many times these collections will show the amount owed but the creditor may have stopped reporting them.  That means the late payment information continues to get older.  If you pay them off the creditor will report this which will then make the late information current and possibly lower your score.  Now, you're going to have to pay these off eventually but it might be a better strategy to wait and pay them off at the closing of your loan.

30%: Amounts You Owe
This is how much you owe on accounts, how much of your credit lines you've used (are you're cards maxed out?), amounts you owe on installment accounts compared to the original balance, and the number of accounts you have that have a zero balance.
Tips:

• Keep your credit card balances as low as you can
• Pay off debt, don't move it around
• Don't close unused accounts.  Zero balance accounts might help your score.
• Don't open new accounts that you don't need.  You might think this would help by altering your debt to credit ratio but it can lower your score.

15%:  Length of Your Credit History
This is is the total length of time tracked on your credit report, the time since each account was opened, and the time that's passed since you last used each account.
Tips:

• There's really only two things you can do for this one.  One, don't close those zero balance accounts you don't use.  You want to keep accounts open as long as possible.  And two, don't open several new accounts in a short period of time.  Adding accounts too fast sends up a red flag that you might not be able to handle your credit responsibly.

10%:  Types of Credit Used
The mixture of revolving accounts, installment accounts, mortgage accounts, etc. makes a difference.  
Tips:

• Try to have a mixture of credit cards and installment loans (car loans, student loans, etc.).  This can help raise your score if you manage the credit cards responsibly.
• Having too many installment loans can lower your score.
• Don't open new accounts just to have several accounts or to attempt a better mix of credit.

10%: New Credit
This has to do with the number of accounts you've recently opened, the number of times your credit has been checked recently (credit inquiries), the time that's passed since you've opened accounts or had inquiries, and whether you've re-established positive credit after you've had problems.
Tips:

• Watch your credit inquiries.  Several in a short period of time might mean that you are attempting to open several new accounts and that can lower your score.
• If your shopping for a loan the software can usually see that the inquiries that are being made are for the same type of loan so it will discount the multiple inquiries.  However, make sure if you're shopping have your credit pulls made as closely together as possible.  Or better yet, get your credit scores from the first lender you try.  A good lender will be able to give you qualification information with just the credit score number.  They'll have to pull the score eventually if you decide to use them but they won't have to pull it while you are shopping.
• Checking your own credit does not affect your scores

Each of the three credit agencies score a little bit differently but the breakdown above gives you a general idea.  If you've got questions about individual circumstances, please let me know and I'll be happy to help!