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Understanding Your Credit Score Getting On The Path To Excellent Credit

WHAT'S IN A CREDIT REPORT

A credit report is a record of your credit activities. It lists any credit card accounts or loans you may have, the balances and how often you make your payments. It also shows if any action has been taken against you due to unpaid bills.

The first thing you need to know about your credit is that you have more than one credit score and they change all the time. Think of your FICO score as a snapshot of your entire credit picture. New information is constantly being added to your report and old information is being deleted. These changes can impact your credit score.

Payment history makes up 35% of your score so it's important to pay all of your bills on time.

THERE ARE 5 PARTS TO THE FICO CREDIT SCORING SYSTEM

  1. Payment History Have you paid your credit accounts on time? Late payments, bankruptcies, and other negative items can hurt your credit score but a rock solid record of on-time payments helps your score. This makes up about 35% of your credit score.
  2. How Much You Owe FICO scores look at the amounts you owe on all your accounts, the number of accounts with balances and how much of your available credit you are using. The more you owe, the lower your scores will be. This makes up about 30% of your score.
  3. Length of Credit History A longer credit history will increase your score. However, you can get a high score with a shorter credit history if the rest of your credit report shows responsible credit management. This accounts for approximately 14% of your credit score.
  4. New Credit If you’ve opened new credit card accounts or added new loans in a short period of time, this factor is going to work against you. Too many recent inquiries could be a sign of financial distress and your credit scores might decline. New credit accounts for 10% of your FICO score.
  5. Other Factors These include the different types of credit you have. It’s a plus to have a mix of credit such as credit cards, a car loan and a student loan. Your ability to handle different types of debt makes up 10% of your credit score.

CREDIT TIPS

1. Review your credit scores at least twice a month for any changes. Credit monitoring sites such as Credit Karma will allow you to see if your score increases or decreases throughout the month. You can also visit www.annualcreditreport.com once a year for a free copy of your credit report.
2. Keeping your credit limits below 30% will increase your score. If you are not able to pay down your credit limit, ask for a credit limit increase. For example, if you have a $1,000 credit limit and you have used $900 or 90%, if you are granted a credit limit increase to $3,000 you're now at 29% utilization and your score will increase without you having to spend any money.
3. Learn when the credit bureaus update your file each month. For instance, if Transunion normally updates your score on the 25th of the month, make an extra payment to the creditors so that it's recorded on the next reporting cycle.

There are no shortcuts to getting out of debt. If a healthy financial portfolio is what you desire, if you know you deserve excellent credit or if you are simply tired of carrying the burden of bad debt, contact me today to get started.

Created By
Tynisha Sanders
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