THE 5 FACTORS OF CREDIT
LEARN HOW TO LEVERAGE CREDIT
10% CREDIT MIX
Types Of Credit Accounts
There are 3 main forms of CREDIT - 1. Revolving Credit. 2. Installments. 3. Open Credit. Simply put, CREDIT enables a person to purchase goods or services using BORROWED MONEY. In return, the LENDER expects to receive the BORROWED MONEY back with a little extra money on top (called interest) and due at a later date. This combination may help you improve your credit mix. Financial Institutions, Lenders and Creditors look at how many types of CREDIT on your credit report. Many CREDIT SCORING models monitor the variety types of the CREDIT you are using which in turn alter your CREDIT SCORE.
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Your credit history is recorded in your credit reports which also contains additional information about your finances. Past behaviors and experiences can help predict future behavior, many financial institutions look back and consider how long you’ve used credit, including your oldest and newest accounts. They’ll also consider the average age of all your open accounts. In general, it’s better to have a longer credit history than a short one. If your goal is to get or maintain a good credit score, get about 4 to 5 different credit card accounts and maintain a utilization rate of 30% or less. Be mindful, when a lender asks to look at your CREDIT SCORE, it will generate the notation of an INQUIRY on your credit report. Too many hard inquiries could indicate greater CREDIT risk. However, most credit scoring models understand that you may be shopping for a LAON or a LINE OF CREDIT and will generally treat multiple inquiries of the same kind as a single inquiry (soft credit pull) as long as they occur very close together. For example, if you’re shopping for a good auto loan deal and all your inquiries occur within a short time frame, they’ll likely count as a single inquiry. The impact of hard inquiries diminishes the older the inquiries get.
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How Old Is Your Credit History
Length or age of credit history refers to the age of the accounts that appear in your credit reports. Closing a credit account or paying off a loan can impact your credit scores in several ways. If you don't have any credit accounts, you will need to open new accounts so you can start building your credit history. Getting new credit when you have none can sometimes be challenging, credit-builder loans and secured credit cards are often a good place to start. Having several accounts can also be better than only having one account on your credit report, as long as you manage them responsibly and always make on-time payments. Once you have open accounts, you'll need to be patient as they slowly age over time. One potential shortcut is to become an authorized user on a family member's credit card. That way you can inherit their credit profile. Beware when participating in becoming ones authorized user if they have bad credit history.
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The total amount of CREDIT you have available, based on the number and types of accounts you have and the amount of money you owe in comparison to the amount of CREDIT you’re actually using is also a common credit scoring factor. Your credit utilization ratio, generally expressed as a percentage, represents the amount of revolving credit you're using divided by the total credit available to you. High balances and maxed-out credit cards will lower your CREDIT SCORE, but smaller balances may raise it – if you pay on time. A LOW CREDIT UTILIZATION RATIO indicates your ability to manage CREDIT well. Many lenders would like to see the ratios of 30% utilization or less. Your credit utilization ratio, generally expressed as a percentage, represents the amount of revolving credit you're using divided by the total credit available to you. Lenders use your credit utilization ratio to help determine how well you're managing your current debt.
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Ask yourself how often you miss payments, how many days past the due date you pay your bills, and how recently payments have been missed. If you have a history of paying all your bills on time all the time, this information can positively affect your credit score. The higher your number of on-time payments, the higher your score will be. Payment history shows any lender whether you make payments on time, how often you miss payments, how many days past the due date you pay your bills, and how recently payments have been missed when it comes to repaying debt. Payments made over 30 days late will typically be reported by your lender and lower your credit scores. Every time you miss a payment, you negatively impact your score.
HERE ARE SOME TIPS ON CREDIT BUILDING!
1. ESTABLISH BANKING “RELATIONSHIPS”-
Just opening a checking or savings accounts will not directly establish your credit history, but credit lenders and financial institutions, who monitor credit, will ask for your bank account routing and account numbers on credit applications. If your checking or savings accounts positively reflect your spending habits with responsibility, this can help the lender determine how much money that they can trust you with that you can responsibly manage.
2. BE CONSISTENT.
When looking at a credit or loan application, lenders and financial institution are looking for stable income sources, consistent work history, previously borrowing history, bank statements, car payments, rental history, your credit score and place of residence. So make sure not to burn any bridges as it pertains to lenders and financial institution that you have previously or currently have worked with as it may slow down or hurt your chances of being approved for something now that you may need in the future.
3. APPLY FOR A DEPARTMENT STORE CARD OR A GAS CARD.
These specific cards may be easier to obtain than regular credit cards and may have lower credit limits. Be careful, some of these cards come with high interest rates. Interest is the amount of money a lender or financial institution receives for lending out money. Your credit score has the most impact on the interest rate you are offered when it comes to various loans and lines of credit. It might be a good strategy to charge only small amounts to be able to pay your card balance off in full each month.
4. APPLY FOR A SECURED CREDIT CARD.
A secured credit card works like any other credit card, but requires a deposit or up front payment up to the account you are applying for. In most cases you will get your deposit back. Some companies will give you credit, (money), based on your previous financial history and may consider upgrading you to an unsecured card (regular credit card) if you meet their specific guidelines.
5. CONSIDER A CO-SIGNER OR CO-APPLICANT.
Applying for a credit card or loan with a cosigner or co-applicant may help you qualify or acquire higher credit limits and even better credit terms. A friend, family member or someone who has established positive credit history. This may better your chances of being of accepted for credit and higher borrowing power. You should remember that your cosigner or co-applicant (friend or family member) takes responsibility for payment. That means the credit history will be reflected on both of your credit reports if either one of you fail to met the financial institutions’ requirements.
