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What affects a credit score

What affects a credit score?

When people think about credit repair, they think about removing negative items from their credit report.  While negative items on your credit report can hurt your credit score for up to 7 years or more, it is important to not only repair your credit but to rebuild and improve it as well. At Credit Solutions Plus we specialize in complete credit restoration unlike other companies that will just repair your credit and move on.  What does this mean?  Not only do we legally remove negative items from a client’s credit report, we also guide our clients on how to rebuild and improve their overall credit profile.  We will help with things such as how to add new lines of credit, how to manage those lines of credit, how to obtain credit limit increases without affecting your credit, and more.

Having a poor credit rating and/or credit score can result in unfavorable loan terms and high interest rates which can cost you thousands of dollars over the life of the loan.  Let’s take a look at what makes up a FICO score, which is the most widely used credit score by lenders today.  In fact, 90% of top lenders use FICO scores when making lending decisions.       myfico.com

1.  Payment history – 35 percent of the total credit score
Payment history is the most important factor in calculating credit scores. FICO keeps an eye on both revolving loans (credit cards), as well as installment loans (student loans, personal loans, mortgage loans).  According to FICO date, a 30-day delinquency could cause as much as a 90 – 110 point drop on a FICO score of 780 for a consumer who has never missed a payment.

2.  Amount of Debt – 30 percent of the total credit score
Next to making your payments on time, the amount of total outstanding debt weighs in on your credit score at 30%.  This is also referred to as utilization when it comes to revolving lines of credit (credit cards).  Since FICO views borrowers who habitually max our credit cards – or who get very close to their credit limits – as people who cannot handle debt responsibly,  it is important to maintain low credit card balances.

3.  Length of Credit History – 15 percent of the total credit score
Your FICO scores take into account how long your credit accounts have been established, including the age of your oldest account, the age of your newest account, and an average age of all your accounts.  In general, a longer credit history will increase your FICO score.

4.  Credit Mix – 10 percent of the total credit score
There are different type of accounts that report to your credit report and FICO will consider your mix of
-Credit Cards – Major credit cards that are either Visa, Mastercard, Discover, or American Express
-Retail Accounts – “store” cards (such as amazon, wal mart, furniture stores, etc.)  These cards can generally only be used at that specific retailer
-Installment loans – Student loans, personal loans, and auto loans
-Mortgage loans

5.  New Credit – 10 percent of the total credit score Research shows that opening several credit card accounts in a short period of time represents a greater risk – especially for people who don’t have a long credit history.

As you can see, there are a lot of different variables when it comes to credit scoring.   We only discussed what makes up a FICO score.  There are many different formulas and companies out there that use different scoring models.  Credit bureaus offer their own specialized scores, with varying formulas.  VantageScore, FICO’s main competitor, has a different one as well.  A lot of times consumers get tied up focusing solely on their credit score instead of focusing on the real key; their credit report.  If there are inaccuracies on your report, your credit score will suffer.  Inaccurate or negative information can affect what you pay for insurance, your ability to get a job or rent a home, and how much you will pay to borrow money.  The good news is that your credit report is something that can be changed either by legally removing negative information or by eliminating bad habits.

Credit Solutions Plus is your strongest ally during the credit restoration process and we are with you every step of the way.  Credit Solutions Plus leverages your consumer rights with our experience to engage the credit bureaus, your individual creditors and collection agencies. We also educate our clients on what they can do to start rebuilding and improving their credit.  A small investment today could save you thousands and thousands of dollars in interest rates alone.  For more information or to schedule a risk free, no cost credit evaluation, visit www.creditsolutionsplus.com

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