We are all accustomed to lenders reviewing credit history, but what about landlords, employers, and utility providers?
With that being said…. how do we establish good credit?
- Pay Bills Promptly
- Minimize Credit Usage
- Pay More Than Minimum Due
- Avoid “over-applying” with Multiple Credit Checks
- Establish a Lengthy Credit History
- Maintain Low Credit Balances
As potential borrowers, we are very inquisitive about our credit score – the numbers making up the FICO. This credit scoring model is used by many lenders to accurately predict a consumer's ability to repay a debt on time.
FICO is comprised of 5 different categories – each of which has its own percentages as to influence and importance.
- New Credit 10%
- Types of Credit Used 10%
- Length of Credit History 15%
- Payment History 35%
- Current Debt 30%
NEW CREDIT - Number of accounts recently opened. An influx of new accounts can negatively impact your credit score.
TYPES OF CREDIT IN USE – Credit Cards/ Retail Accounts/Installment Accounts & Loans. Having a balance of these 3 types of credit can help increase your score. In addition, lenders may look for comparable borrowing within their loan type.
LENGTH OF CREDIT HISTORY – A longer credit history tends to increase a FICO score. The factors are not only the length of time a credit account has been established but also how often it has been used.
PAYMENT HISTORY – Over a third of a FICO score is based on past payment history on
- Credit cards (Visa, MasterCard, American Express and Discover)
- Retail accounts (department store credit cards)
- Installment loans in which regular payments are made (car loan or mortgage account)
- Finance company accounts
- Public records and collection items (bankruptcy, foreclosure, lawsuits, wage attachments, liens and judgments)
CURRENT DEBT – Amounts owed on all accounts, number of accounts that carry a balance; availability of credit remaining compared to original loan. Credit utilization is the most important factor in this category – keep credit utilization low.
Most credit scores have a 300-850 score range. The higher the score, the lower the risk to lenders. A "good" credit score is considered between the range of 670-739. However, the specifics of the score far outweigh the actual number. Many times, one 30 day delinquent account can be a huge component if it was fairly recent. Alternatively, collection accounts and other late payments can not be as large of an impact if it occurred the previous year. That is why our company doesn’t credit score. It’s the “hows” and “whys” of the score that matter to us when evaluating an applicant.