If you're in the United States we do have a credit score system which forgives me. I'm sure you all probably know this but it just determines your creditworthiness.
When you're trying to get a loan for a car, a personal, loan maybe a mortgage. It's a way to help lenders who don't know you from the kind of pain determine.
If they can loan that money to you without the credit score it's pretty hard to trust if they're gonna get their money back and in business for all about that return. Let's unpack what your credit score is made up of from the most impactful to the least impactful.
35% - Payment History
First is your payment history at a whopping 35%. Your payment history tells people whether or not you pay on time. If you don't remember anything else remember this.
Always pay one time.
Even if you're making the minimum payment is don't be late now what most parts of yours consider late is actually thirty days. If your credit card is due on the 15th but you don't pay until the 30th. It won't actually be reported to the credit bureaus as late.
May pay fees but that won't get reported that doesn't mean pay late I'm just letting you know.
30% - How Much Is Owed?
The next bucket is how much you owe and that holds it 30% weights. What lenders are looking at is how much you owe versus how much you have available to borrow.
Typically they want to see under 30% utilization. If you have a %1000 on your credit card they wouldn't want to see more than $300.
Anything over $300 might indicate that you're having a problem with the money that you currently have and you have to use this money to get through your day to day activities.
If you're maxed out that's telling lenders okay this person taps out all their resources. It might be a little bit riskier for us to loan the money to them.
Making sure you do not max out your cards is very important because this is a 30% wait like I said. Ways to get around this is obviously don't spend all the money that you have.
Also, consider rehearsing a credit line increase because that will also help make it seem like you have more than you actually do.
For example, if you had a $2,000 credit limit and took out $2,000. Your utilization at 100% you are actually maxed out but if you kept that same exact $2,000 and you requested an $8,000 increase that 100%. Now drop down to only 20% utilization so you will be much more responsible and who does want to be responsible.
15% - Credit History
The next bucket at 15 % is your credit history and we don't have much control over this because the first time you apply for a card that's when your history starts.
If that was last month. Then obvious would be a pretty low number but as you continue to go throughout the years and you're paying on time you're not maintaining a large balance this will also help add some extra points to your credit score.
The way this works is that it takes the average of all your outstanding lines of credit loans etc.
Let's say you're first launched about 5 years ago and then this year do you guys take out another line of credit you went from having a 5-year history to two and a half years because I was taking the average of those two cards.
Do keep that in mind I mean again this is only 15% so it's not a huge way but it would have an effect obviously if you need to apply for a loan. You need to apply for a loan and it's not really what you can do about that also because of this please do not close out your oldest card.
If you're not using the card that's okay just don't use it but when you close out a card it would dramatically impact your credit history. Especially if it's one of the older cards if you get anything out of this it's do not close out all those credit cards.
10% - New Credit Inquiries
This is basically to see are you having a lot of inquiries in a short period of time. When you do have an inquiry it will affect your credit score.
Maybe it's just a couple of points I think when I apply for a loan the other day my credit dropped about like three points or so but that only lasts for about six months and then those points you'll see them get right back into your credit score.
But the actual inquiry will last for 2 years on your credit reports. Lenders do not want to see you getting multiple credit inquiries in a short period of time.
What that shows lenders that you are maybe in a desperate situation and you just keep on frantically applying for credit maybe you're not getting it maybe you are but that puts them at more risk because if you owe all these people money what's the chance I'm gonna get my money back.
Definitely make sure that if you are applying do not go on an application rage because you are going to be affecting your credit score even though it's only 10%. It does stay on your report for two years they will see all those inquiries and you'll see the dates so they see that you're applying back to back to back in my beer with flag.
10% - Credit Mix
That's just basically saying what kind of debt do you have. Lenders love to see variety right so maybe you've had a car loan, you had a personal loan you've had a credit card.
It shows that no matter what kind of credit product that you're receiving that you are actually getting that stuff paid down so it looks good.
If you're coming into a lender's office trying to buy a house and all they see you have is a secured credit card. It doesn't really build a strong case for you.
Whereas you went in there you've had two car loans you've had a whole bunch of different credit cards maybe you had a line of credit. It just shows more variety and it gives them there's more confidence that they can lend you this money and that you would be able to handle it responsibly.
Good Credit Score
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| Credit Score Breakdown | What Makes Up Your Credit Score | What’s considered a good credit score anyway? |
I will show how to improve your credit score things to absolutely avoid that will murder your credit score what derogatory marks are and a whole bunch of different information.
Please make sure you are on the lookout for more information alright so that's all for this article if you liked it please give me a share and be sure to subscribe and as always keep your money up
