Wednesday, May 13, 2009

Do you know your credit scores?

Banks, mortgage lenders, auto finance and consumer credit companies have always looked at credit scores as one of the factors when evaluating if and how much credit they give to someone. These companies and now insurance companies are utilizing credit scores as a much bigger factor than they were before.

For example; a year ago in the mortgage industry a person with a 650 credit score would have received the same interest rate as someone with a 750 or even 850 credit score. But with the credit tightening that has gone on for the last several months…all of that has changed.
You can still get a mortgage loan today with a 620 credit score, but it will not be the same loan or interest rate as someone with a 720 credit score.

With that in mind, it’s that much more important that you understand how credit scores are determined. Credit scores are based on five main categories, which are as follows:
  1. Payment History (Approximately 35% of your score is based on this category)
    1. Have you paid your past credit accounts on time?
    2. Are there any collection accounts, bankruptcies, foreclosures, lawsuits?
    3. How delinquent were the accounts? (60 days late, 90 days late, how many)
  2. Amounts Owed (Approximately 30% of your score is based on this category)
    1. What type of accounts do you owe on (credit cards, installment accounts, etc.)?
    2. How many accounts have balances?
    3. How much of the total credit line is being used?
    4. How much is owed compared to the original balance on installment accounts?
  3. Length of Credit History (Approximately 15% of your score is based on this category)
    1. How long have your credit accounts been established?
  4. New Credit (Approximately 10% of your score is based on this category)
    1. How many new accounts do you have?
    2. How long has it been since you opened a new account?
    3. How many recent credit inquiries have been made on your credit report?
  5. Types of Credit in Use (Approximately 10% of your score is based on this category)
    1. What kind of credit accounts do you have and how many of each?
As you can see there are a lot of factors that go into determining a credit score, so it’s not only important to know your credit scores but to also know your credit report. There are many sources of information out there to help you; so reach out to a professional if you need the help.

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