I’ve shared in previous posts that your credit score impacts what you pay for car and home insurance. It’s my pleasure to introduce Kim Danna, our guest blogger for today’s look at how your credit score is generated and what impacts it. Kim’s a Vice President at Stonegate Advisors, LLC, a firm that helps people legitimately repair their credit.
Before credit reports and scores existed, financial institutions had to guess whether someone was a good applicant (or risk) for taking out a loan. Credit reports and scores were “invented” to take the guess work out of it. The national average credit score is approximately 672 – – but how are credit scores calculated?
Even though every company calculates them differently, the “big scoring items” tend to be similar:
Payment History – 35% Impact: Paying your debts on time has the greatest positive impact on your credit scores. And missing one payment, even if you’ve NEVER missed a payment in your credit lifetime, can sink your score 50-80 points PER BUREAU.
Credit Card Balances – 30% Impact: “Maxing Out” your credit cards or charging over the limit will negatively affect your credit scores. Ideally, you should manage small balances to show the bureau’s you are “financially responsible” and not depending on credit too much. Keeping balances at 20%-30% of your limit is the smartest way to handle revolving accounts and gain the most points.
Credit History – 15% Impact: Having multiple, established trade lines over a long period of time increases your chances of borrowing again/more. Closing credit cards can/will affect your scores as well. You’ll lose ALL of the positive pay history associated with the account – as well as the available credit limit, which could raise your credit usage and send you over 50% usage.
Type of Credit – 10% Impact: A healthy mix of credit is both “installment” (mortgage or car payments) and “revolving” (credit cards). Aim for at least 1 installment and 2 revolving if you’re just starting to establish or re-establishing your credit.
Inquiries – 10% Impact: Inquiries are measured in 6 month intervals – but, simply speaking the bureaus don’t like to see a lot of them. Your score can drop from 2-25 points for EACH inquiry, so keep them to a minimum. Checking your credit online at a free site is considered a “soft inquiry” and will have no impact on your credit score.
For more information about credit, scores and credit repair, please feel free to contact me directly at firstname.lastname@example.org or 972-590-8880.