Everyone knows that a credit score is important.  A good score gains you favorable interest rates and access to a variety of mortgage loans.  While this does not assure you of a healthy financial future it does build on a strong foundation.

But do you know how your credit score is determined?  Being armed with information about how to build and protect your credit score can be key to raise your score.  Here are some important facts:

AVERAGE AGE OF OPEN CREDIT LINES:  The longer your credit history and the older your accounts the better.  That is why it’s a good idea to keep older credit cards open and active, and start applying for credit at a young age.

DEROGATORY MARKS: Derogatory Marks are negative items on your credit report such as tax liens, bankruptcy and collections.  These records stay on your credit for 7 to 10 years.  If you have one on your credit report it can indicate, you mismanaged your credit in the past.  The best way to overcome these negative items is to start rebuilding healthy credit.

ON-TIME PAYMENT PERCENTAGE This is the percentage of payments you’ve made on time during your credit history.  This plays a huge role in determining your credit worthiness.  Making one or two late payments could significantly impact your score for the worse.  Setting up automatic bill pay or a calendar reminder for bill due dates can help you keep track and get payments in on time. 

TOTAL ACCOUNTS:   Consumers with more accounts often have a higher credit score.  This is because it indicates that more lenders are willing to give them credit.  Having a good mix of different types of credit is good for overall credit health as well.  But be prudent:  Only apply for credit cards you need.  There is no need to apply for every store credit card in which you make a purchase.

HARD INQUIRIES:  When you apply for a credit card, auto loan or mortgage, a hard credit inquiry is initiated on your credit report.  One hard inquiry will have little impact on your credit score, but multiple inquiries can have a larger impact.  A soft inquiry is when you check your rate to see what you quality for.  If you are unsure, check with your potential lender before applying to see if they hard or soft pull to protect your credit score.  

CREDIT CARD UTILIZATION:  This number is a percentage that is calculated by taking the total of your credit card balances and dividing that number by your total credit card limits.  This will show creditors how much of your total available credit you are already using.  The lower your credit card utilization, the higher your credit score. 

***It is important to remember that once you make loan application for a mortgage you should not obtain any new credit accounts.  This new debt or potential debt can negatively affect your credit score and what you qualify for.  (Don’t buy a new car or charge a new refrigerator on your credit card), wait until you have closed on your new home to incur any new or added debt.

Have additional questions? Contact us and we would be happy to help!