What Is Credit Really Made Of??

| March 30, 2011 | 0 Comments
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Ok, so we all know that paying your bills is good for your credit score and not paying them is bad.  Got it.   But there is much more detail and a number of factors that you wouldn’t think of that weigh heavily on your score.

We, at Credit Repair Life, are happy to give this to you for free.  The only reason I mention that is because other websites charge for this info:)

So here it is:

1.     How You Pay Bills = 35%.  No big surprise there.  This includes 30, 60 or 90 day lates on anything reporting to credit.  It also includes collections, charge-offs, bankruptcies, foreclosures and judgments.  We all know if you pay bills late and end up with these things on your report, your score is going down.  Fast.  What you might not know is that these items only total 35% of what they taken into your scoring your credit history.  Hmmmm…

2.    How Much You Owe vs. Available Credit = 30%.  Ok, what exactly does this mean?  Example: You owe $1000 on a credit card with a limit of $10,000.  Good.  Plenty of available credit and not using up every credit line you have.  Or, you owe $9000 on two cards each with a limit of $10,000.  Also known as “maxed out.”  You are spending every available dollar of credit you have and are most likely close to defaulting on some of your debts.  Result = credit score plummets because the risk for the creditor is much higher.
Here is a free tip: If you have a $10,000 balance on a card with a limit of $20,000 AND another card with a balance of 0 with a limit of $20,000, transfer 5k over to the second card!  You will be at 25% of the limit on each one and your scores will surely jump up.  We have used this technique in the past to get people up to a certain score to qualify for bank loans.

3.     Length of Credit History = 15%.  Much less than the previous two but still very important.  If you have had a couple credit tradelines for 6 months in good standing is not nearly as good as having accounts in good standing for 6 years.  Makes sense.

4.    Mix of Credit = 10%.  Less of a factor but still there.  If you have a well-rounded mix of credit such as a mortgage, a car loan, a student loan and two credit cards it looks better than if you have five credit cards with balances.  Again, not a huge factor but something to take into account.

5.    New Credit Applications = 10%.  This just tells creditors that you have been applying for credit recently.  There are a number of “inquiries” on your credit report.  What does this mean?  Two things:  maybe you are desperate to get a credit line for some reason.  Not good.  Or, other creditors have been declining your applications.  Also not good.
So I hope you learned a few things from this post.

Don’t hesitate to contact us with questions.  Or if you would like a FREE credit consultation, call the 888-586-1776 or fill out the form on the right.

Best of luck!

-Chris, CreditRepairLife.com

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Category: Blog, Improving Credit Score

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