As we all know, credit can either help us turn our dreams into a reality or it can be the one road block that keeps getting in the way. What does my credit score even mean?
What is credit?
The credit scoring system was originally designed in the 1950’s to help lenders determine how well consumers could pay back borrowed money. While there have been many updates to how this system is used, the components of a credit score consist of these major factors:
Payment History – 35% Impact
Outstanding Credit Card Balances – 30% Impact
Credit History – 15% Impact
Inquiries or New Credit – 10% Impact
Types of Credit – 10% Impact
What can impact my credit score?
Paying off debts on time has the greatest positive impact on your credit score. Late payments, judgments and charge-offs all have a negative impact. Keeping lower balances on the open credit accounts you have is a sure way to keep that score going up! The longer you have positive credit history, the better. However, multiple credit inquiries in a short period of time, such as applying for multiple credit cards, can have a negative influence on your score. The type of credit you have is also a factor. Having a mix of credit, such as an auto loan and a credit card, is more positive than a combination of debt from multiple credit cards.
What if I don’t have any or enough credit?
There are simple ways to begin building credit history. Start establishing credit history by opening a small line of credit with your bank or credit union and begin making minor purchases that can be easily paid off. Your bank may offer a secured credit card if this is your first time applying for credit. This type of card works like a debit card and will require deposited funds for purchases; just be sure your history will be reported to all three credit bureaus.
What if I have less than perfect credit when applying to purchase a home?
Knowing what is on your credit report is the first step. Obtaining a credit report will show which areas are helping your score and which areas need to be worked on. When applying for a mortgage, your loan officer will be able to see if there are any areas that need work to help you get on the right track for a future purchase.
Want to find out where you stand? Let’s get the conversation started.
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