Real Estate Success Link

Keeping an eye on your credit score (or FICO score) is very important.  This number is one of the largest factors used when you are getting a loan and sometimes it even plays a part in getting insurance and possibly a job.

Your credit or FICO score is somewhat a snap shot of your financial history.  What is this history composed of?  There are typically 5 areas that are looked at; payment history, amounts owed, age of account or length of history, new credit, and the types of credit you have – these all play a part in your credit score.

Your payment history (do you pay on time) carries the largest weight in your score – around 35%.  This is looked at to see if you pay on time or if you are late paying.  When your credit is being looked at there is a time factor involved – if you have been recently paying late it will count more against you than if you were late paying several years ago.  One thing to keep in mind as well is that late pays drop off after 7 years.

The next item that carries a lot of weight in your score is the amounts that you owe.  This accounts for about 30% of your score.  This consists of what your outstanding balance is in terms to what your credit limit is.  This is looked at as a ratio and it compares what you owe (your balance) against your credit limit or what money is available to you.

The next item that weighs in on your credit is the history or how long have you had certain accounts.  This carries about a 15% weight.  This looks at how long have you had certain accounts and have been making payments on them.  It shows a potential lender how much experience you have with making payments.  Having a lot of history is good so do not close your old accounts.

Be careful about opening new accounts.  Sometimes you will want to open new accounts to add more credit to your balance and available ratio however this may hurt you some.  When you open a new account or tries to do so you will get an inquire on your credit report and this can impact your score.  New inquires typically have a 10% impact on your score.

The last factor in your credit score is the type of credit account you have.  This usually has a 10%  impact on your score.  The main thing here is that the lenders want to know that you are paying on time as well as on what types of accounts.  A mortgage is looked at differently than a credit card as well as a car loan.  If possible it is best to have a mortgage as one of the items and not just credit card accounts.

Knowing how your credit score is determined and monitoring it so that it is a good score is very important.  Having a good score will save you thousands in interest over time because you will be rewarded with lower rates when you have a higher score because you will be seen as responsible.

Make sure you monitor your credit score so you can deal with any negative issues and keep your credit score positive.