Solid Snake
02-21-2005, 12:32 AM
I thought I'd share with you all some of the useful stuff I found out. There was some confusion in another thread about what would help and harm your credit.
Scores range from 300-850. 850 is perfect, 300 is you'll never, ever get credit, and 720 is the median score. 720 is quite good.
The score is based on statistical analysis of millions of credit histories. It's meant to predict the likelihood of a person having a 90-day-late (basically defaulting) in the next two years.
The Breakdown: your score is comprised of five main factors. Here's the breakdown.
35% of your score is based on how you pay your bills (i.e. do you pay on time)
Recency of your last late payment. 6 months ago or less is bad. 6-24 months is only sort of bad. More than 24 months is no problem.
Frequency of late payments. Less is better.
Severity of lates. 30-days isn't too bad. 60-days is worse. 90-days is very bad.
30% is based on credit utilization. That's your available credit compared to how much of it you use. (i.e. you have a limit of $3000, and a balance of $2000, that's a 66% utilization)
This is figured both overall, and on individual cards. Overall, you want something fairly low, but they didn't give an exact number. Something like 30-40% or less is what you want. Any higher will hurt your credit score. On an individual card, utilization of 50% or more is bad.
There are three ways of fixing this. One is getting your limits raised. One is moving around credit so that no one card has more than 50% utilization. The other way is (obviously) paying them off.
Incidentally, the ideal number of cards for this part is 3-5. They want you to have several credit cards, but not too many. (ATM/check cards don't count)
15% is history-- how long have you had credit cards for?
What they want you to have is 30 years or more. Any less harms your credit score. This is a tough one, though, since it's calculated by averaging your credit cards. Had one for thirty years, and just got a new one? Sorry, now your history is 15 years, and your score's going to plummet.
Many people get new cards all the time, to get lower interest rates. This really hurts your credit score.
10% is the type of accounts you have.
Auto loans, mortgages, etc are neutral. What hurts is what's called finance company backed revolving loans. These are the type of loan you get when you buy furniture, and they tell you you can pay in installments, and don't have to pay anything for the next six months. They're not waiting all that time to get paid, they have a finance company pay them and take over the loan. Generally, most things that you can buy on an installment plan, other than autos or homes, fall under this type of loan.
Just having one of these types of loans harms your credit score. It doesn't matter if you pay on time, pay more than you need to every month, whatever. Having it hurts your score.
This is why mortgage loan brokers will warn you not to buy lots of furniture for your new home before closing escrow. If you do so, it impacts your credit score, and could even cause your loan to fall through, leaving you unable to buy the home.
Another thing to be careful of is home equity lines of credit (HELOCs). This is when you've had a house for a few years, built up some equity, and you want to be able to take some money out of it. A HELOC of less than $30,000 is counted as a revolving loan, the type that hurts your credit score. If it's more than $30,000, it counts as a regular installment mortgage loan, and doesn't hurt your score.
10%, the final part, is based on inquiries.
Whenever you apply for a home loan or an auto loan, or do any number of borrowing money related things, credit score companies receive an inquiry for your credit report. The more inquiries there are, the more the company figures you're trying to borrow, and the farther down your score goes. Each inquiry hurts your score by anywhere from 2-15 points.
Not to worry, though. If you personally request a credit score, just for your own information, it is not counted. Also, soft inquiries, when an insurance company or someone like that requests a credit report, just to see if you're likely to pay on time, aren't counted either.
Mortgages or auto loans generally take a large number of inquiries. You might want to find out about multiple types of loan, or shop around for the best rate. Mortgage inquiries over a thirty day period are counted as one inquiry. Auto inquiries over a similar period are treated the same.
And that's about it. Oh, one more thing. Bankruptcies. Bankruptcies obviously put your credit score in the toilet, but this can be slightly mitigated if most of your bills were payed off in the bankruptcy. If it's been a while, your score can start climbing back up, but a post-bankruptcy late payment is a major negative. Lots of inquiries post-bankruptcy are also harmful. A bankruptcy stays on your credit report for 10 years. However, tax liens and child support defaults can potentially stay on there for the rest of your life.
Whew. I hope this was helpful. If anyone has any questions, I can try to answer, but I don't know that much more than is contained in this post. Anyway, good luck to all.
Scores range from 300-850. 850 is perfect, 300 is you'll never, ever get credit, and 720 is the median score. 720 is quite good.
The score is based on statistical analysis of millions of credit histories. It's meant to predict the likelihood of a person having a 90-day-late (basically defaulting) in the next two years.
The Breakdown: your score is comprised of five main factors. Here's the breakdown.
35% of your score is based on how you pay your bills (i.e. do you pay on time)
Recency of your last late payment. 6 months ago or less is bad. 6-24 months is only sort of bad. More than 24 months is no problem.
Frequency of late payments. Less is better.
Severity of lates. 30-days isn't too bad. 60-days is worse. 90-days is very bad.
30% is based on credit utilization. That's your available credit compared to how much of it you use. (i.e. you have a limit of $3000, and a balance of $2000, that's a 66% utilization)
This is figured both overall, and on individual cards. Overall, you want something fairly low, but they didn't give an exact number. Something like 30-40% or less is what you want. Any higher will hurt your credit score. On an individual card, utilization of 50% or more is bad.
There are three ways of fixing this. One is getting your limits raised. One is moving around credit so that no one card has more than 50% utilization. The other way is (obviously) paying them off.
Incidentally, the ideal number of cards for this part is 3-5. They want you to have several credit cards, but not too many. (ATM/check cards don't count)
15% is history-- how long have you had credit cards for?
What they want you to have is 30 years or more. Any less harms your credit score. This is a tough one, though, since it's calculated by averaging your credit cards. Had one for thirty years, and just got a new one? Sorry, now your history is 15 years, and your score's going to plummet.
Many people get new cards all the time, to get lower interest rates. This really hurts your credit score.
10% is the type of accounts you have.
Auto loans, mortgages, etc are neutral. What hurts is what's called finance company backed revolving loans. These are the type of loan you get when you buy furniture, and they tell you you can pay in installments, and don't have to pay anything for the next six months. They're not waiting all that time to get paid, they have a finance company pay them and take over the loan. Generally, most things that you can buy on an installment plan, other than autos or homes, fall under this type of loan.
Just having one of these types of loans harms your credit score. It doesn't matter if you pay on time, pay more than you need to every month, whatever. Having it hurts your score.
This is why mortgage loan brokers will warn you not to buy lots of furniture for your new home before closing escrow. If you do so, it impacts your credit score, and could even cause your loan to fall through, leaving you unable to buy the home.
Another thing to be careful of is home equity lines of credit (HELOCs). This is when you've had a house for a few years, built up some equity, and you want to be able to take some money out of it. A HELOC of less than $30,000 is counted as a revolving loan, the type that hurts your credit score. If it's more than $30,000, it counts as a regular installment mortgage loan, and doesn't hurt your score.
10%, the final part, is based on inquiries.
Whenever you apply for a home loan or an auto loan, or do any number of borrowing money related things, credit score companies receive an inquiry for your credit report. The more inquiries there are, the more the company figures you're trying to borrow, and the farther down your score goes. Each inquiry hurts your score by anywhere from 2-15 points.
Not to worry, though. If you personally request a credit score, just for your own information, it is not counted. Also, soft inquiries, when an insurance company or someone like that requests a credit report, just to see if you're likely to pay on time, aren't counted either.
Mortgages or auto loans generally take a large number of inquiries. You might want to find out about multiple types of loan, or shop around for the best rate. Mortgage inquiries over a thirty day period are counted as one inquiry. Auto inquiries over a similar period are treated the same.
And that's about it. Oh, one more thing. Bankruptcies. Bankruptcies obviously put your credit score in the toilet, but this can be slightly mitigated if most of your bills were payed off in the bankruptcy. If it's been a while, your score can start climbing back up, but a post-bankruptcy late payment is a major negative. Lots of inquiries post-bankruptcy are also harmful. A bankruptcy stays on your credit report for 10 years. However, tax liens and child support defaults can potentially stay on there for the rest of your life.
Whew. I hope this was helpful. If anyone has any questions, I can try to answer, but I don't know that much more than is contained in this post. Anyway, good luck to all.