There are five factors that comprise the credit score. These are listed below in order of importance. Consider these five factors when trying to improve your credit score.
- PAYMENT HISTORY - 35% IMPACT: Paying debt on time and in full has the greatest positive impact on your credit score. Late payments, judgments, collections and charge-offs all have a negative impact. missing a high payment will have a more severe impact than missing a low payment, and delinquencies that have occurred in the last two years carry more weight than older items.
- OUTSTANDING CREDIT BALANCES - 30% IMPACT: This factor marks the ratio between the outstanding balance and available credit. Ideally, you should make and effort to keep balances as close to zero as possible, and at least 50% below the available credit limits (a balance of 30% below the available credit limit is even better!) It is never a good idea to close an account; the debt to income ratio will go up and the number of seasoned lines will decrease. Paying outstanding down as close to zero as possible and evenly redistribute the remaining balance among the open lines. The increased interest occurred by moving a balance from a 0% card to a 23% card will be minimal relative to what the increased mortgage debt might be with a low credit score. Hitting the maximums of available credit can be very negative. It may be worth calling and asking the credit card company to increase your available credit to lower the debt ratio, provided they can do so without a hard credit inquiry.
- CREDIT HISTORY - 15%: This portion of the credit score indicates the length of time since a particular credit line was established. A seasoned borrower will always be stronger in this area. Opening new credit cards will decrease the average length, and therefore hurt this portion of the score.
- TYPE OF CREDIT - 10%: A mix of auto loans, credit cards and mortgages is more positive than a concentration of debt from credit cards only. Careful, too, when getting credit at a store that is not a department store: the agencies frown on cards for more specialized stores where you're likely to only make one purchase, as they seem to show desperation.
- INQUIRIES - 10% IMPACT: This percentage of the credit score quantifies the number of inquiries make on a consumer's credit within a six-month period. Each hard inquiry can cost from two to fifty points on a credit score, but the maximum number of inquiries that will reduce the score is ten. In other words, 11 or more inquiries within a six-month period will have no further impact on the borrower's credit score. Note that if you run a credit report on yourself, it will have no affect on your score.
Your Local Mortgage Services:
Don Frazier
Mortgage Consultant
Office: 765-446-2930
Email: dfrazier@tippecanoemortgage.com
Website: www.IndianaMortgageMan.com
Mortgage services for Greater Lafayette and West Lafayette Indiana, Purdue University, Tippecanoe County and the surrounding Indiana Communities. We are a Local Company with a National Reach! Visit my website for great home loan information: http://www.indianamortgageman.com/
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