Credit Score Management

The best way that you can build a excellent credit history is by not overloading yourself when credit cards and debt when you are first given the chance. Credit companies like nothing more than to give cards and loans to young college students that don’t have the first clue about how to manage debt or credit cards. As a result, many young adults find themselves in a credit hole far too early. But, even if you don’t follow this path towards terrible credit, the question of making a excellent credit profile becomes an vital one. What exactly makes up a credit score anyway? Well, to help you out, we’ve made this brief guide to credit scoring that should help get you on your way to making excellent credit for the future.

The main thing you need to know about credit scoring is that there are three major credit reporting agencies. The most vital and most heavily weighted one is Equifax, which also makes a FICO score that is used by most lenders. The FICO score is what we will discuss here, because it is the simplest to know and to monitor.

The FICO score is composed of several factors:

• Bill Payment – This basically takes into account whether you’ve been paying your bills on time or not and is the most heavily weighted factor, at 35%. If you haven’t been paying on time, or you have a lot of collections, this is the factor that can really cause your credit score to sink rapidly. They rate by 30 days, 60 days, 90 days, and 120 day overdue debt. If you’ve got a lot of these showing up on your credit report, then your credit score is probably much worse than you’d like.
• Credit Card Balances – Revolving balances are a major factor of your credit score too. If you have a few credit cards, but they are all maxed out, then it provides the appearance that you are in financial distress. This factor accounts for 30% of your credit score, so if you have a lot of maxed out credit cards and high balance loans, then you will need to pay them down to see an improvement in your credit score.
• Type of Credit – This part accounts for 10% of your credit score and is derived from how many accounts you have open and what type of accounts they are. Revolving debt, loans, mortgage, and consumer debt all play a factor here. The key is to not overextend yourself and keep only a few necessary accounts open at any given time.
• Credit History – Your credit history accounts for 15% of your FICO score and is based upon the age of your credit accounts and your profile in general. New accounts are not as favorable as ancient accounts, so the longer you’ve had an account the better. If you have some ancient accounts and some new accounts, then make sure you don’t close the ancient ones unless you are prepared for an immediate decrease in your credit score. Ancient accounts with solid payment history are the best way to make a excellent credit score.
• Credit Inquiries – This accounts for the final 10% of your credit score and is based upon how often you have applied for credit. An overabundance of inquiries tells the potential lender that you are shopping for loans or credit all over the place, which is generally frowned upon. Keep the inquiries as low as possible for the best results.