Credit Score Break Down
You may know all the latest celeb gossip, and you know exactly what the last bid is on the purse you’ve been eyeing on ebay – but do you know your credit score, do you know how it breaksdown, and do you know how to improve it!
This little number controls a lot more in your life than you think. It has a direct impact on your ability to take out a mortgage, credit card or other loan and on the interest you’ll pay for it. The higher your FICO score, the more money you’ll save yourself. For example someone with a score above 760 could literally pay thousands of dollars less per year in interest on their mortgage than someone whose score is below 620.
Credit scores range from 300 to 850 and here is how it breaks down:
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35 percent = payment history
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30 percent = amounts owed on each account
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15 percent = length of credit (how long you’ve had the accounts)
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10 percent = new credit (new accounts opened or inquiries made for more credit)
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10 percent = types of credit in use (e.g. credit card, department store, mortgage, or school loans
Here is how to keep your score high:
Payment History
Pay your monthly payments on time. If you are having trouble keeping up with payments, notify your lender that you need to work out an arrangement and then get current on any past due accounts as soon as possible.
Amounts Owed
Keep low balances relative to your credit limit: keeping your total balance at 35 percent or less than your total credit available is good.
Opening new credit cards or a line of credit just to make your outstanding balances look smaller in relation to your total credit capacity won’t help; in fact, it could actually hurt if you rack up more debt on those accounts.
Length of Credit
Consider keeping old accounts open if you’ve been a good borrower. Closing an account actually erases your good payment history from your report. It’s better to cut up the card but leave the account alone.
New Credit Category
When shopping for new credit, keep the search to a short time frame—aim for 14 days or less. FICO scores distinguish between a search for a single loan and a search for several new sources of credit in part by the length of time over which your inquiries occur.
