Payment History Carries The Greatest Weight
With just about everyone’s credit in the dumps, we thought that a quick refresher abut what makes up a credit score would help. Keep in mind that we have heard a great deal of talk about revamping the credit scoring system. With so many foreclosures, short sales, bankruptcies, loan modification and the like peoples’ credit scores have taken a beating in the past few years. Thus, many continue to discuss about revamping the credit system.
Until any serious credit changes take place here we list the Five Factors of Credit Scoring. We listed the factors below in order of importance.
1. PAYMENT HISTORY – 35% IMPACT
Paying debt on time and in full has the greatest positive impact on your credit score. Late payments, judgments and charge-offs all have a negative impact. Missing a high payment will more severely impact your score than missing a low payment, and lower your credit score. Delinquencies that have occurred in the last two years carry more weight than older items.
Credit Limit And Outstanding Balance Rank 2nd In Credit Impact
2. OUTSTANDING CREDIT BALANCES – 30% IMPACT
This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home.
3. CREDIT HISTORY – 15% IMPACT
This portion of the credit score indicates the length of time since a consumer established a particular credit line. A seasoned borrower will always be stronger in this area.
4. TYPE OF CREDIT – 10% IMPACT
A mix of auto loans, credit cards and mortgages is more positive than a concentration of debt from credit cards only.
5. INQUIRIES – 10% IMPACT
This percentage of the credit score quantifies the number of inquiries made on a consumer’s credit within a six-month period. Each hard inquiry can cost from two to 25 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 effect on your score.
Remember that the credit score is a computerized calculation. The credit report does not take into account personal factors. It merely reflects a snapshot of today’s credit profile for any given borrower, and it can fluctuate dramatically within the course of a week.
We hope this info helps.
Please feel free to contact us with any questions.