Credit Score

Understanding your credit score is extremely important, especially when looking to make major purchases such as a house, a car, or student loans. Knowing what your score is, what makes up your score, and what influences your score negatively and/or positively will enable you show financial responsibility and build a better score.

Your credit score represents a snapshot of your financial history in order to provide lenders an idea of the risk you pose to them if they were to lend you money or extend credit. Your score determines the amount of credit available, the terms you are able to obtain (interest rate, fees, etc.), and what programs you are able to qualify when looking at purchasing a house.

Credit scores range from 300-850. The higher the score, the less risk you pose to lenders. The lower the score, the more risk you pose to lenders.

Credit Score Pie Chart

Credit Score Breakdown

Your credit score is influenced by five factors. Click on each box below to learn more:


Do you make your payments on time? Especially for your mortgage, car loan, credit cards, and student loans. The first thing all lenders want to know is if you pay your credit accounts on time. This is why payment history is weighted so heavily because making payments on time is a good indicator of your financial responsibility. One or two late payments are not going to sink your credit score, but making a habit of paying late will certainly prevent you from reaching a higher score. How late your payments were will decrease your score the longer you fail to make payments. A 30-day late payment is not as serious as a 90-day late payment. Bottom line, the number of accounts that do not show any late payments will increase your score. Make your payments on time and you have nothing to worry about for this 35% of your credit score.
This factor of your credit score is based on the amount of credit you have used up and owe the credit company compared to the maximum amount you are able to borrow or use. The higher you have used in relation to your max, the more your score will be negatively affected. The lower you keep your balances, the more your score will increase. A general rule of thumb is to keep your credit card balances (including store charge cards – Kohl’s, Best Buy, Wal-Mart, Target, etc.) below 30% of your maximum allowable limit. For example, if you have a $1,000 max limit, you should strive to always keep your balance below $300. The credit bureaus also factor in your balance as it passes 50% of your max, 75% of your max and when you have exceeded your max limit. Installment loans – auto loans, student loans, and mortgages – also impact your score in this area as well. If you have multiple installment accounts that are all near the maximum loan balance and you have not shown the ability to start reducing these balances, your score will take a hit. If you have a balance on a credit card that is under the 30% limit and you have not missed a payment, this reflects more positively than having a zero balance with missed payments. If you have a large number of accounts with high balances, this shows you are at risk of over-extension and cannot use credit responsibly.
This the length of time your accounts have been open, the length of time you have had late payments, or the length of time you have been above your credit limit. Your credit score will consider the age of all your accounts, young and old, and how long ago you used specific accounts. This is why it is not always a good idea to close out an open account that you do not use very often because the longer it is open, the better it reports on your credit score. By simply closing an account, you do not get rid of the accounts history. If there are many delinquent late payments on an account, keeping it open, making payments or simply not using the account will be better for your score than closing it right away.
Are you attempting to take on more debt? Taking on more debt in a short period of time is shown to represent greater risk. Unfortunately, if you have many inquiries on your credit report, the credit bureaus see these as you successfully opened a new account simply because they are unable to track what actually happened with the account. So if you are trying to open new credit card accounts, limit your inquiries because when you go to obtain a larger loan, it will appear as though you just opened 10 credit cards. It is important to note that when applying for a mortgage or auto loan, you are able to shop for the best rate and not be punished for the number of inquiries that occur within a specific period of time. Most credit bureaus will allow you to shop around for 30 days without adding dozens of inquiries to your credit report. Any inquiries that occurred within a 45 day period will only count as one inquiry.
Do you have a healthy mix of credit accounts, installment loans, and other accounts? If you have 20 credit cards and no installment loans, your credit score will be negatively impacted by this fact. While it is not necessary to have one of each, it is not a good idea to have credit accounts you do not need or use. This factor will not solely determine your credit score, but it will have a large impact if there is not a lot of other information or accounts to base your score on.

Improve Your Score

Pay your bills on time, especially your mortgage, which weighs heavier than car loans. Car loans and student loans weigh heavier than credit cards. Payments to utilities do not count unless you are sent a collection for nonpayment. That said, pay all your bills! No one likes to sit in a cold, dark room.

If you missed a payment and it is your first for the account, call the company and ask that they do not report the late payment. Many times the company will take this into consideration if it is your first late payment. If they are unwilling to accommodate you, get current and stay there. The longer you pay your bills on time, the better your score.

If you are unable to pay your bills on time, seeking the help of a legitimate credit counseling organization will not hurt your score. This service will enable you to better manage your credit and help you pay your bills on time to begin increasing your score.

Keep your credit card balances below 30% of your max limit (ex: $1,000 max limit, keep your balance below $300)

Pay off your debt rather than move it around to other credit cards with higher max limits.

Do not open up more credit card accounts to increase your available credit. This can cause many problems in the future and negatively impact your score.

Do not close unused credit cards for a quick bump in your score. You will still owe the balance that was on the card and you have just eliminated an open account that could have reported positively. Now you are adding to your outstanding debt and eliminating your available credit.

Do not close unused credit cards with a zero balance, unless you cannot use it responsibly. Again, this eliminates positive aspects of your credit report and prevents them from reflecting in your credit score.

Avoid looking for a quick fix to increase your credit score, especially through credit repair agencies that charge a fee to improve your score by removing negative information, even if it is accurate. While most of these efforts fail to see results, those that do see this negative information reappearing in the future, causing their credit scores to fall again. Time, paying off debts and responsibility are the best remedies for low credit scores.

If you have a short credit history, do not open accounts in a short period of time. These new accounts will lower the average age of all your accounts and can decrease your score. It is best to open only what you need, focus on making on-time payments, and keeping your balances low.

If you are going to shop for a mortgage or auto loan, do it within a short period of time to avoid adding additional inquiries that will hurt your credit score.

Be careful about attempting to open many accounts at once. Even if you do not open an account, the inquiry will report that you did open an account so it will negatively impact your credit score.

Your score will not be impacted if you request your credit report from a credit reporting bureau.

Apply and open new accounts only if you need them or to build a better credit report if you lack specific account types.

It is okay to have credit cards, as long as you manage them responsibly. People with no credit cards are viewed as higher risk than people with credit cards that are able to make their payments and keep their balances low.

Again, closing an account can upset your credit mixture and doesn’t make the history go away.

Credit Counseling

If you would like us to review your credit report to help you increase your credit score, we are more than happy to do so. As certified credit counselors, we take an approach that will teach you the best methods to increase your score so you are able to purchase your dream home.

Contact us today to set up an appointment with a certified credit counselor.

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