What's in a Credit Score? - The Secret Behind Good and Bad Credit
According to FICO, the leading credit scoring agency in the world, there is a certain list of what is used to make up your credit score. FICO ratings are used by the majority of lenders and financial institutions, and the actual importance of the aspects of your credit rating may vary depending on your situation. Also, you should keep in mind that the actual score that you have is only one factor that helps determine whether you're creditworthy or not. The rules are different for every lender and every consumer depending on what their report contains, so make sure that you understand this is just a general guideline and not a concrete formula to determine creditworthiness.
Payment history generally makes up about a third of the credit score. This includes details about whether accounts are paid on time, whether balances are paid off consistently or if minimum payments are made, and delinquent accounts or past due balances. Bankruptcies, judgments, collection accounts, and past due credit cards and loans are all monitored within this area of your credit score.
Variety is the spice of life-very cliché but also very true when it comes to credit reporting. A small part of your credit score, is determined by the variety of credit that you have. For example, if you have a mortgage, a car loan, and a few credit cards, you'll have a better credit score than someone with just a mortgage or just credit cards.
Newness of accounts or recent credit grantors will affect another small portion of your score. If you have six credit accounts on your credit report and four of them are less than 2 years old, you're going to look greedy and irresponsible to most creditors, lowering your score. Also, the number of inquiries you have that are recent makes an impact on this. If you apply for three credit cards in three months and are denied, this lowers your scores because you appear to be overextended and desperate for credit.
The outstanding debt that you have is much more significant in impacting your credit score. About a third of your credit score will be attributed to your outstanding debts and your debt to income ratio as well as your credit-debt ratio. For example, if you have a total available credit of $10,000, use $97,000 of that credit, and have monthly payments of $500 versus a monthly income of $1000, your credit will probably look less than exemplary. Ultimately, the more credit you have and the less you are using, the better off you are.
Finally, your credit history timeline makes up another smaller percentage of your score on average. You should never close your oldest accounts because these are what give you creditworthiness when it comes to proving that you have been using credit long enough.
For help with debt settlement, or to learn more about credit and debt, contact Epic Debt Relief today at 877-971-3232.