Your Credit Score

Credit score range between 350 and 850 and jost creditors grant credit based on your FICO score. FICO scores consist of many factors about a borrower. For example, credit history, employment history, residency history and others. Therefore, maintaining stability in these areas is critical to borrowing, obtaining employment in some industries, and even renting an apartment.

Possible effects of lower credit score (Poor credit)

·           Higher cost to borrow money

·           Lower credit limit

·           Credit denial

·           May affect employment opportunity in some industries

Factors that lower your credit score

Payment history

1.         Missing three or more payments consecutively

2.         Missing payment on several accounts

3.         Pattern of late payments

4.         Having a third party manage your debts – shows you may be in trouble

       Credit usage

1.         Carrying high balances on your charge cards

2.         Maxed out or over limit of available credit

3.         Having little funds available from multiple open credit lines.

4.         Having too many open credit accounts with high available limits

5.         Having several credit accounts open with low credit limit

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Factors that raise your credit score

       Payment history

1.         Paying accounts as agreed on time

2.         Paying on accounts with high outstanding balances consistently

3.         Having few credit accounts open

4.         Having more than 50% of your credit limit available

5.         Having one or two open credit accounts with high credit limits

6.         Using your open lines of credit consistently and paying as agreed

FACTORS AFFECTING YOUR CREDIT SCORE AND THEIR WEIGHTS

Ø          Do you pay your bills on time? (35%):  The more recent the late payments, the lower your score.  In fact, a recent 30 day late payment hurts your score more than a bankruptcy five years ago.

Ø          How much do you owe? (30%):  If the amount you owe is close to your credit limit, this lowers your score.  A low balance on a few cards is better than high balances on one or two cards.  The rule of thumb is - keep balances below 30% of the credit limit. (e.g. if limit is $1000, keep balance below $300).  Better yet, pay balances in full monthly.

Ø          How long is your credit history? (15%):  The longer your accounts have been open, the better.  Opening then closing accounts at random will lower your score.  Transferring balances for a new lower rate card can hurt your score.

Ø          How many and what types of credit accounts do you have? (10%):  Too many credit accounts can lower your score.  Do not apply for and/or open accounts indiscriminately.  Obtain credit from banks and credit unions.

Ø          Have you applied for new credit recently? (10%) If you have applied for too many new credit accounts recently this may lower your credit score (4-6 inquiries in 6 months is too many). Multiple inquiries from the same type of creditor within 14 days counts as one inquiry (such as if your were shopping around for a mortgage or car loan).  Not all inquiries are counted; creditors prescreening for credit offers do not count. It only counts if you send in the application for their credit offer.

Summary

In addition to your credit score, lenders want to see that you have sufficient income to repay them; therefore, they consider your debt to income ratio by looking at your income and total expenses.