Wow, Take A Chill Pill!! It is not that bad!
Credit scores have been around for a long time, but it seems that this three digit number that is assigned to each of us, continues it's climb in importance! Employers are using the score to make a hire or not hire decision, insurance companies are basing their insurance prices to you off of it, same with car dealers, credit cards and mortgages.
It can cost you literally thousands upon thousands of dollars extra if you don't have a "Good Score".
You may think credit scores are based on how you pay your bills. IF you pay them on time each month, then you have a good score - RIGHT? - WRONG! I had a very sad story to tell about that one. One of my customers that due to credit had to take a subprime loan. When I gave them the loan, I also educated them on the credit score model and exactly what needed to be done so that when we refinance in two years, their credit score would be good. They chose to disregard my information, and thought well if I have a mortgage and pay it on time for 24 months my score will be fine. Well, the sad part of that was that when the time to refinance arrived, their scores were actually worse and there was no loan for them........ So, please read, listen and implement.
Let me try to share some insight on how to manage your score, without boring you.
35% of your score is comprised of - do you pay your bills on time - So pay your bills on time if at all possible. Don't let that little 35.00 a month payment go 30 days late!
30% of your score is related to - what is the amount of credit used compared to the amount of credit that you have available. Example the closer to zero the higher your score! You are probably scratching your head on that one. Let's say you have a credit card with a 20,000 high limit, and you are carrying a 19,000 balance on that card - Not good- that will pull your score down dramatically. Simple thing to do is keep your current balance less than 50% of your available credit. But, as I said the closer to zero the better. There are many ways you can change this around - getting credit line increases , having a family member add you on as an authorized user, and just changing around the balances between cards. This could get lengthy, if you want more info on this. Just let me know.
15% is the Age of credit. The longer your accounts are open the better your score will be. So, the lesson to be learned here - Do not close your accounts!
10% - Credit Mix. Best mix is a couple credit cards, a car loan and a mortgage.
10% - Number of inquiries. I am told and read that you can shop for a car or a mortgage for up to 45 days and it will not impact your score. Now what I am told and what I actually see are two entirely different things. I have seen credit scores go down 20 - 50 points because of multiple inquires ( shopping for a car or mortgage) - so it is important that you have as little inquires as possible.
Take care, Hope this article was helpful, and let me know if you would like any more info on this important aspect of our life - Whether we like it or not!
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