Your Credit Scores Indicate the Likelihood That a Loan Will be Paid On Time

YOU HAVE DIFFERENT TYPES OF CREDIT SCORES

It’s Like Comparing Apples to Oranges

 

Since different types of creditors use different scoring formulas, you can’t compare online credit scores to scores obtained from a mortgage company, credit card, etc.

 

See an example of how someone can have different scores for different industries:

• Mortgage Score: 680
• Credit Card Score: 561
• Online Score: 594
• Cell Phone Score: 432
• Auto Score: 625
• Insurance Score: B+

KNOW THE SCORING FACTORS

50% of the Score: PAYMENT HISTORY

 

MAKE PAYMENTS ON TIME
On-time payments are the foundation of good scores.

THE LAST 2 YEARS OF HISTORY
impact scores the most. The longer your payment history is, the more it helps your scores.

THE NUMBER OF OPEN ACCOUNTS
factors into your payment history. Ideally, you want 4 or more open accounts. (More in Step 3)

MORE ADVERSE ACCOUNTS
means lower scores. Newer adverse accounts hurt more than older ones. (More in Step 6)

35% of the Score: AMOUNT OF DEBT

 

DON’T MAX YOUR CARDS
Lenders think you’re a greater risk.

A NEW LOAN IS A NEW RISK
If your credit report doesn’t show much debt, a small new loan ($1000) hurts scores for 4-6 months. A big loan ($25,000) hurts scores for a year or more.

CREDIT CARD USAGE RATIO
is your [total balances] divided by your [total limits]. A higher ratio means lower scores. (More in Step 4)

 

0-30% Ratio = Doesn’t hurt scores.
30-60% = Scores drop 20-40 points.
60-100% = Scores drop 40-100 points.

10% of the Score: MIX OF CREDIT TYPES

 

VARIETY OF ACCOUNT TYPES
Showing you can handle a variety of credit obligations helps scores.

MORTGAGE ACCOUNTS
are home & real estate loans.

REVOLVING ACCOUNTS
are credit cards, charge cards, & home equity lines-of-credit.

INSTALLMENT ACCOUNTS
are auto, recreational, or student loans paid by monthly installments.

UTILITY ACCOUNTS
require the full balance paid every month.

5% of the Score: INQUIRIES

 

ONLY HARD INQUIRIES AFFECT YOUR SCORES
These occur when you apply for credit (i.e., mortgage, auto, credit card, cell phone).

HARD INQUIRIES AFFECT SCORES FOR ONLY 6 MONTHS
even though they remain on your credit report for 2 years. They affect your scores by 4-10 points per inquiry, depending on the type of credit application.

 

Mortgage Inquiry: about 4-7 points.
Credit Card Inquiry: about 6-10 points.

MULTIPLE INQUIRIES WHILE SHOPPING FOR LOANS
All mortgage and auto inquiries made within any 14-day period counts as only one inquiry against your scores.