Understanding Your Credit Score & Your Credit Report
Today a great deal of attention is placed on credit scoring. At most credit unions, including MCFCU, your credit score is a very important factor for approving loan requests and establishing lending rates. Understanding how your personal credit score is calculated can help you make sure you have the best credit rating possible!
Everyone has a unique credit history that affects their credit score. You have a direct effect on yours by your repayment history, use of credit lines, and credit inquiries. Public records, collections, and bankruptcy are all a part of that history. This information below can help you understand what makes up that score and how you can help to improve your personal rating. At the end of this article is information on how you can obtain a free copy of your credit report!
What Makes Up Your Credit Score?
Your credit score is made up of 5 major areas:
35% - How well you pay your current debts
30% - Your credit capacity (how much credit is available for use?)
15% - The length of time credit has been established
10% - The amount of debt you have outstanding, including opening dates and the number of inquiries
10% - The type of debt you have - installment debt can raise your score, revolving debt (credit card) can lower your score
Your score can be hurt by:
- Missing payments - regardless of the $$ amount it can take up to 24 months to restore credit when there is 1 late payment!
- Credit cards at capacity - if your credit cards are "maxed out" you have no capacity.
- Closing credit cards out - this lowers available capacity.
- Shopping for credit excessively - when creditors access your report an "inquiry" is reported. Excessive "inquiries" can hurt!
- Opening up numerous accounts in a short period of time.
- Having more revolving loans (credit cards) in relation to installment loans (i.e. car loan).
- Borrowing from finance companies.
What doesn't affect the score?
- Debt ratio
- Length of residence
- Length of employment
How to improve your score!
- Pay down those credit cards!
- Don't close the cards, however, because your "capacity" will decrease. You don't have to use credit cards to establish good credit!
- Continue to make payments on time - even if you have one or two late payments. Older late payments will become less significant with time.
- Slow down on opening new accounts. Do not respond to offers for more credit cards when you receive them in the mail.
- Acquire a solid credit history with years of good repayment experience.
- Move revolving debt (credit cards) into installment debt (home equity loan).