Credit Scoring
The first thing you need to know about credit scoring is that you do not have a single score. You have many and they change all the time. Credit scores are designed to be a snap shot of your credit picture. New information is being constantly added to your report, and old information is being removed. Those changes can fluctuate your credit score. Your Credit Score Your credit score or rating is a number between 300 and 850 that summarizes your credit report. Your score is based on all the information in your credit report and is a quick sum of your overall credit health. The score is calculated by looking at: your payment history, amounts payable, how long you have had credit, the type of credit accounts you have, how many open accounts you have, how many inquires there are on your file, and how new your accounts are. Negative items on your credit can have a terrible affect on you credit score. Removing these negative items is the single most important thing you can do to raise your credit score.You credit score directly impacts loans and credit you apply for in the future. You may not qualify for a loan if your score is not high enough. You may also, be charged an extremely high interest rate because of your low score.
Factors that may hurt/help your credit score:- The largest factor of your score is your payment history. Negative items, including late payments, accounts in collections, public records such as judgments or bankruptcies, can cause devastation to your score. Think of negative items on your credit like "F's" on your report card.. On the positive side, responsible payment history demonstrates a low credit risk. A combination of negative and positive figures make your payment history account for nearly 35% of your credit score.
- The use of your revolving credit is also important. Revolving credit is short-term and varies from month to month. Credit cards are an example. If you carry a balance on one or more cards, your score may drop. How much your score goes up or down depends on your balance versus maximum limit (debt utilization ratio). Using more than one third of your maximum credit may lower your credit rating. Revolving credit accounts for about 30% of your credit score.
- Another important factor is the length of your credit history. The longer you demonstrate responsible credit management, the higher your credit score. On the other hand, negative credit information can hurt your score for years, although older data is less damaging than recent activity. Many consumers are surprised when their credit score drops because they did the right thing and paid down an old, inactive collection account. Credit history amounts to nearly 15% of your score.
- Your credit score accounts for the type of credit you have. If you have five credit cards extending $10,000 in credit total, this may lower or raise your score compared to financing a single $10,000 installment loan. Typically, higher credit scores demonstrate responsible use of multiple account types (i.e. both installment loans and revolving credit).
- Finally, new credit covers about 10% of your score. New accounts have not yet had time to prove responsibility and lightly damage a score. Multiple new accounts can predict a financial risk crisis. Very large extensions of credit, like a home loan or new vehicle loan, can reduce your ability to get more credit in the short term.
The above factors above can make achieving a high credit score a complex task, especially if you are trying to bounce back from bad credit or bankruptcy. Negative credit data can greatly reduce your power to finance major purchases.
The good news is that Waterfield Credit can define what hurts or helps your credit and what actions are required to raise your credit score. As a result, Waterfield Credit can help you achieve the highest credit score possible, specifically for you.
Waterfield Credit has a personalized solution for you. If you have questions if you should close an old credit card account, want to know how to handle a collections agency, or wish to optimize your credit score for a large financing such as a home mortgage; we can help.