SERVICES FOR BUYERS- GETTING TO KNOW YOUR CREDIT SCORE
We’ve all heard of it before, but exactly what is a credit score? What information does it reflect? Can it be improved? How? This page is designed to give you answers to these tough questions.
There are five main components of an individual’s credit score:
Your payment history (35% of overall score)
When a lender looks at a potential borrower’s payment history, it is looking for patterns of behavior that may continue in the future, especially if there are indications that a borrower may default. TIPS TO IMPROVE: Make your payments on time, every time—even items in dispute. Pay the bill and worry about refunds later.
Amounts you owe (30% of overall score)
“Amounts owed” are not the specific dollar amount owed, rather it is the dollar amount borrowed relative to the amount available to you. A lender wants to know what might happen in a crisis. If a potential borrower is “maxed out,” there is no safety net. TIPS TO IMPROVE: Don’t lower your available credit limits. Having access to credit is good, even if you don’t use it.
Length of your credit history (15% of your overall score)
Information about how long a potential borrower has had credit tells the lender how “experienced” that person is in terms of managing credit. Credit bureaus want to see that it isn’t a potential buyer’s first time managing a loan. TIPS TO IMPROVE: Don’t close credit cards that show the length of your “history.” They show potential lenders how experienced you are.
New credit (10% of overall score)
Generally, the more credit for which a potential borrower has applied, the more damage done to the credit score. (This rings truer for credit cards than mortgage applications.) TIPS TO IMPROVE: When looking to secure a mortgage, multiple credit checks can count as a single credit inquiry, which protects your credit score.
Types of credit (10% of overall score)
Some loans, such as mortgage and student loans, are considered preferable to credit and charge cards. TIPS TO IMPROVE: Try not to limit the number of charge cards you carry.