5 KEY FACTORS TO CREDIT SCORING & HOW YOU CAN AVOID PAYING MORE FOR YOUR LOAN
The model of credit scoring seeks the likelihood or the consumer being able to pay off a debt in a timely manner. Score range from 300 to 900. Most consumers have credit scores ranging from 400 to 850. The higher the score the better your credit rating is. Therefore, the higher the score the low the interest rate. The can save the consumer hundreds of dollars over the length of the loan they are taking out. Most people have a credit score average of 680 and above and you ideally would like above 700. How to do achieve this and where do you start assessing your credit rating? Here are 5 things to look at when assessing your credit.
- Payment History- The impact is about 35%
Paying debt on time or paying in full every time gives you the highest positive impact on your score. Should you be late or have collections or judgments this will have a negative impact on your score. Typically they look at the last two year history.
- Credit History- The impact is about 15%
This part of your score is the history of how long you have had the credit for. The length of your history tells the story of how consistent you are on paying on time. The longer the history the higher the score.
- Type of Credit- The impact is about 10%
Your credit score is better if you have a variety of accounts. Auto loans, installment, credit cards (revolving), and mortgages all have a positive effect with the history and paying on time with these accounts.
- Outstanding balances on credit-The impact is about 30%
This is very important that when you have a revolving debt like a credit card that you look at the maximum line amount and you must stay below 50% of the line and 30% below has a positive impact on your score. Paying off every month or a -0- balance is what you would want to achieve. Do not close an account with a remaining balance. Wait until it is paid off. Closing out many account because you do not want them can have a negative impact because the scoring recognizes that you are closing them out because you are afraid to spend.
- Inquires- The impact is about 10%
You need to watch how many times you apply for credit or have your credit report pulled. This can act negatively toward your credit scoring. 3 inquires in a 90 day period can drop you score. But pulling your own credit will not count against your scoring.
When it comes to getting a mortgage the guidelines have changed based on credit scoring. When applying for a mortgage we look at all three major credit bureaus. Lenders are now charging for scores that are below 680. That is why it is crucial that if you are thinking of purchasing or refinancing that you have your credit reviewed before so that if you need to plan to pay down balances or pay off accounts or focus on applying on time your have time to have the scores improve. Don't wait until it is too late.
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