Rachel Haig: Hi I’m Rachel Haig for Morningstar.com. Credit scores have gotten a lot of attention since the beginning of the credit crisis so what score is good enough to be considered credit worthy.
Your credit score are also known as your FICO score is a large determinant of the types of credit you have access to and at what rates. According to stand in money someone with a score of 580 will likely pay 3 more personalized points on the mortgage since with the score of 720 and what currently stretch the standards the score in the 500 may make it difficult to qualify at all.
So how exactly is your score calculated and what can you do to improve it? Your score can range for 300 to 850 based on 5 factors outlined by 5 though. First is payment history. This part of your score is the largest component and as based on the number of payments passed due how far pass due they were and how recently late payments occurred. Second is amounts owed, this section is how much you owe, the number of accounts with balances and how much with your available credit you’re using. Also know as your credit utilization ratio or debt to cut it ratio.
Third is the length of your credit history. As you expect this takes into account how long you had credit the time since accounts opened and since they were last used or growth factors. Fourth is new credit this looks at the portion of accounts that were recently opened and the number and re-- of new credit inquires. Inquiries occur whenever you apply for a credit card, car loan or other line of credit and the originator request your credit score. Only inquiries that you initiate by applying for new credit count against your score so checking your own score will not count against you.
Fifth are types of credit. This looks at the variety of your credit lines having a healthy mix of different types of credits such as credit cards a car loan and a mortgage improves your score as long as you stay current on all of your accounts. Keep in mind your credit score does not factor in your employment status, income, age, gender or any other none credit related information.
So what are some things you can do to increase your score? First check your credit report at least ones each year. This will not only help show you where you stand but will also help you identify unauthorized accounts. Quickly dispute inaccurate information or accounts that are not yours, you’re legally entitled to a free report annually from each of the three major providers Experian, TransUnion and Aquafax.
It is normal for your score to very slightly between the 3 reports. It’s a good idea to space out you request from each so that you can see new report every four months. AnnualCreditReport.com is the official site to access your free annual report. Another useful free resource for credit information is creditkarma.com.
Second reestablish on time payments. The longer your history of on time payments and the further you get from these payments the better your score will be. Opening a new account and paying it off consistently will eventually raise your score. Items such as bankruptcy affect your score for 7 years but you can start minimizing the damage in has little as 2 years with on time payments.
Third keep your credit usage low as a proportion of your total available credit. Also don’t cancel accounts you no longer use because doing so will decrease your available credit and that’s increase the amount that you’re using. If you have accounts that you’re no longer using that are still open it’s important to keep an eye on them to protect yourself against fraudulent use. If you have cars that you’re not using to charge high annual fees though you should think about closing them.
Fourth, if you want to close multiple accounts space them out rather than closing them all at ones same goes if you’re trying to open multiple new accounts and finally keep your rate shopping period for car loans and mortgages to 30 days to make sure its all treated as one inquiry. Knowing how your credit scores calculated and what you can do to improve it or the first steps to improve your credit worthiness for morning star.com I’m Rachel Haig.