Have you ever wondered what makes up your credit score? How do the three rating agencies determine your score? The raw break down looks like this;
35% Payment history – Making your payments on time, every time will take care of this one!
30% Debt – How much credit you have versus the amount you are extended. You can have a perfect payment history but have three small cards that are maxed out and have a sub-par credit score
15% Time accounts open shows the depth of your credit experience. If you have managed your finances properly for ten years you will be more attractive than a borrower with only 12 or 24 months of experience
10% Credit mix or Account Diversity – Installment payments like auto loans or student loans plus some revolving credit like credit cards will show a more diverse experience with credit and improve your score.
10% Search for New Credit or Inquiries – Who are you seeking credit from and how often. The more you shop for credit the lower your score will be. However, every industry and every credit bureau has windows of time when you can shop for services without be penalized multiple times. For example, if your shop for an auto loan from 3 different lenders within a week you will lilely only be hit for that credit pull one time. The bottom line is only apply for new credit when you need it, not for 5% off a $50 purchase!
Soft pulls don’t count against you. Soft pulls can be from many different avenues. Creditors that you are currently doing business with can check your credit periodically with out it affecting your score. Employer checks, credit card offers and Auto Insurance carriers are other examples of soft pulls.
Your Credit Score drives the decision engine of your creditors, including Mortgage Brokers, when it comes to determining your interest rates and how much credit to extend to you. Don’t get caught without an education!
