By now, you’ve realized that your credit score plays a MAJOR role in your life.
It impacts whether or not you get a job, earn a promotion, and consequently, can end up costing you thousands of dollars in interest paid on credit cards, car loans, health insurance, and ultimately, your home loan.
In this article, you will learn:
1. The 5 Factors That Impact Your Credit Score
2. The Difference Between Credit Karma and Your Real Score
The 5 Factors That Contribute To An 800 Credit Score
The first thing you have to know is, your credit score is judged by your spending habits and character for repaying debt. Credit debt falls under the umbrella of credit card, medical bill, apartment leases (ya, even the one you rented in college), car loans, and mortgage loans. FICO tracks your habits and mostly, your track record for paying off debt that you take out. If you do not have. a credit score, this post will help you understand what TO DO in order to get a great credit score. If you have a credit score, this info will teach you how the credit scoring algorithm judges you and reports your credit score to the credit bureaus - Equifax, TransUnion and Experian,. The 5 Factors That Impact Your Credit Score: (1) Payment History (35% impact to your score): Simply put, it scores how well you make your payment on time (or not). (2) Amounts Owed (30% impact to your score): This is the 2nd largest factor, a close second to #1.... This is all about judging you on your ability to live within your means. What I mean by that is, let's say you have a 1000 limit on your credit card, but you owe $900 on it. It's considered "maxed out" to the bureaus. Therefore, they penalize you, or reduce your credit score as a result. A general rule of thumb is to carry a zero to 20% balance to limit ratio for optimal reporting to the bureaus. (3) Length of Credit History (15% impact to your score): Ideally, the bureaus want to see your credit accounts (auto loans, credit cards, student loans...) opened and paid on for at least 12 months. Greater than 12-months with perfect payment history will have a positive impact on your credit score. (4) Credit Mix (10% impact to your score): This simply means that the credit bureaus want to see a mix of different types of credit ranging from credit cards, student loans, auto loans, and mortgage debt. Only having student loan debt may hurt your ability to grow your credit score because your credit history lacks diversification. From what I've noticed by looking at hundred of thousands of credit reports is, someone that has a credit card that has been opened for longer than 24 months in good standing, an auto loan opened for greater than 12 months in good standing, and a mortgage loan paid on for greater than a year typically has a 760 credit score or higher. (5) New Credit (last but not least, the necessary evil): This factor has a 10% impact on your credit score. I call this the necessary evil, because, as you are establishing your credit, you need to apply for new credit. So, applying for new credit and getting new credit will hurt your score, BUT, you need it to get an 800 credit score! The old adage, and this is what the credit scoring algorithm goes by is, "the best time to apply for credit is when you don't need it." The bureaus, based on statistics, will penalize you for opening credit cards, because (statistically), it's a sign of financial weakness, meaning, if you had cash, you would just buy it, so you don't have cash (you're poor according to the algorithm), and you finance it... They will hit you with a short-term penalty to your credit core to account for "risk". After you open the card, within 6 months of good payment history, typically, your credit score is improved... I hope this info was helpful, if you have any questions, please reach out, I'd love to connect! Also, with the emergence of the FREE online credit monitoring services (aka Credit Karma...), I've made a video that explains the shocking difference between the FREE credit karma score you get and an actual REAL credit score you get from a mortgage lender like me.
PS - If credit repair is needed, I will recommend you contact Blue Water Credit.**
These guys are great, here’s an example how a client improved their scores:
CREDIT KARMA VS YOUR REAL CREDIT SCORE
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