Most people are aware that their credit score is important when purchasing a home, but there is often quite a bit of confusion about what factors determine a score, and how you can improve your credit score.
Below is some useful information to help answer your credit score questions.
Factors that Determine Credit Scores
Payment History = 35%
· Do you pay your credit on time?
· Length of positive credit history
· Severity & quantity of delinquencies
Amount of Debt = 30%
· Quantity of credit Accounts - too many credit cards with balances can lower a score.
Length of Credit History = 15%
· The longer the history, the better.
· How long have your credit accounts been established?
· How long has it been since you used certain accounts?
New Credit = 10%
· Research shows that opening several credit accounts in a short period of time does represent greater risk - especially for people who do not have a long established credit history.
Types of Credit in Use (Healthy mix) = 10%
· 2 installment loans
· 3 revolving accounts with balances
· Balances on revolving debt below 30% of the high credit
· No collection accounts
· No public records
· No foreclosures
· No late payments
How to Improve Your Score
· Pay all your bills on time or early. Even a 30 day late payment on a small credit card can have a significant negative impact on your scores.
· Don't co-sign loans - their late payments are yours!
· Don't close old revolving accounts no longer in use.
· Don't open new accounts unless absolutely necessary. (Inquiries may or may not affect your score depending on the rest of your credit history.)
· Report fraud immediately. If you find yourself the victim of fraud, immediately contact the credit bureaus, your credit card companies, banks and the FTC at www.ftc.gov.
· Monitor your credit. Order a copy of your credit report once a year from www.annualcreditreport.com.
· If you are planning to refinance or buy a home, do not make any purchases or run up the balances on your credit cards prior to the transaction.