Is your credit score healthy?

What is your credit health?

Your credit score is a representation of your overall credit health. Most lenders utilize some form of credit scoring to help determine your credit worthiness.

Many people do not know what their average FICO score is and only find out that their score is negative after applying for something in credit. Your credit score tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). FICO Scores are the credit scores created by Fair Isaac Corporation. Lenders mostly use this credit score followed by an analysis of your credit report to determine if they should extend credit to you. Your FICO score will range between 300-850. If you have poor credit begin working on restoring your credit before purchasing anything as your credit score determines the interest and terms of your loan and may cost you way more if you have the least perfect credit scores. Always check and ensure what is on your credit report as these five factors plays and important role in the FICO model: 1. Payment history; Paying your bills on time is very important. It’s the most important aspect of having good credit. It accounts for (35%) of your credit score so ensure that you are on time with your bills every month. 2. Credit Utilization Rate; this the amount you owe overall on your credit accounts. It adds up to 30% of your credit profile. So if you are using too much of the credit offered to you then this will cause a big decline in your credit score. 3. Credit History; Do you have a credit history? Well your history of borrowing, opening accounts in credit is very important and adds to a 15% of the pie of your credit score. Your oldest to newest accounts are taking into consideration when calculating your scores. What I see a lot while working with clients is that some do not have a credit card at all which adds to building your credit score. You may be bad with money or had bad experiences managing money but you have to learn how to use credit within your limit and pay on time every month. 4. Credit Mix; Depending on the type of accounts you have on your profile this adds a mere 10% to your overall score. It might sound small but don’t rush into taking out excessive debt if you don’t need it. Your account mix is always good factor. Having different accounts shows that you can manage credit. If you have never had any credit then there's no track record of your ability to payback. 5. Finally; New Credit; All of your recent accounts adds up from new accounts to old accounts. Your new accounts accounts for 10% of your credit profile. Always check and ensure before hand the requirements that the lender is going to look for before they pull your credit score. Even though FICO is the most used credit scoring model there are different models used by different consumer reporting agencies. It is very important as well that you consider paying your credit cards off each month in full and if you are not able to do so always pay the minimum balance as missed or late payments will negatively affect your credit scores. The single biggest factor that affects your credit score is your payment history.

Pulling a copy of your credit report is necessary as it helps you be get ready for credit approvals before you are ready. You can get a full copy of your credit report here at www.annualreports.com

Feel free to connect with us for help with repairing or rebuilding your credit profile.

ReplyForward