Your credit score is a number between 400-800. Where you lie in that range is depends upon five major factors that I have listed below.
The most important factor in determining your credit score is your Payment History. How you pay your debt has a huge impact on your credit score. If you pay your bills on time and in full your credit score will be significantly higher than if you make late payments, or if you have judgments, charge-offs, bankruptcies, or a previous foreclosure. It is generally understood that your payment history can make up as much as 35% of your total credit score.
The next most important factor in determining your credit score is your Outstanding Debt. The ratio of your outstanding debt to available income and credit can make up 30% of your credit score. The experts recommend that in an ideal situation your debt ratio will below 30% and certainly no higher than 50%. They also recommend that you never close an account even if it is paid off. Closing accounts causes your debt ratios to go up, and it also reduces the number of seasoned lines of credit that you have to your credit. Another recommendation from the experts is to pay your outstanding debt as close to zero as possible and to then evenly redistribute your remaining balance among your other open lines of credit. This can get a little complicated, and if you have questions I can refer you to an excellent lender who will give you advice and tips to help you raise your credit score.
The third most important factor in establishing your credit score is your Credit History. Your credit history can account for as much as 15% of your total credit score. The longer your Credit History can be tracked the better, providing that this shows a history of on time payments.
Next in order of importance is the Type Of Credit you have established. This will account for 10% of your credit score. A good variety of credit cards, auto loans, and mortgages is preferred. It is not wise to have all credit card debt.
Last but not least is the number of Inquires that you have on your credit report. This will account for 10% of your total credit score. Inquires for credit will impact your credit in a negative manner. There are exceptions made for auto and home loans, and up to 20 inquires can be made in a 14-day period without causing a negative impact on your credit. These repeated inquires for auto and home loans are treated as one inquiry if they occur within a 14 day period. Each inquiry on your credit can cost you 2-50 points. The maximum number of inquires that will negatively impact your credit are 11 in the past 6 months. Any inquires above this number will not do additional harm to your credit score.
As you can see there are many factors that can help or hurt your credit score. If you are thinking of purchasing a home, call me. I work with some of the best lenders in the business and I will be happy to refer you to one of them. They will tell you exactly where you stand and what you need to do, if anything, to improve your credit
