New Credit / Recent Credit
New credit is not always a bad thing. Some borrowers may need to add new credit to help build a score, when buying a home. However, opening new accounts can hurt a credit score, particularly if you apply for a lot of credit in a short time and don’t have a long credit history. Credit scores factor in the following:
- How many accounts the consumer applied for recently,
- How many new accounts the consumer has opened,
- How much time has passed since the consumer applied for credit,
- How much time has passed since the consumer has opened an account
Scoring models look for “Rate Shopping”. Shopping for a mortgage or an auto loan may cause multiple lenders to request your credit report many times each, even though a person is only looking for one loan. Auto dealers are notorious for running 3 to 15 credit reports. This is known as shot gunning the credit. Fortunately, to compensate for this, the scoring models counts multiple inquires in a 14 day period as just 1 inquiry.
For most people, a credit inquiry will take less than 5 points off of their score. However, inquires can have a greater impact if you have few accounts or a short credit history. Large numbers of inquires also means greater risk. According to MyFICO.com, people with 6 inquires or more on their credit report are 8 times more likely to declare bankruptcy than people with no inquires on their report.
Part 6 of 6 To Follow Shortly
Do you have credit questions, Contact Bill Spragg at 281 804 3333, BSpragg@LcaNow.com or Harry Bradley at 713 419 7151, HBradley@LcaNow.com
Length Of Credit History
This is not as important as the previous topics but it still matters. It considers the age of the oldest account and the average age of all of your accounts. It is possible to have a good score with a short history but typically the older the account, the better.Young people can still have a high score as long as other factors are positive. If a person is new to credit then there is little they can do to improve a credit score. The only solution is to open an account and be patient.
Part 5 of 6 will follow shortly
For questions, contact Bill Spragg at BSpragg@LcaNow.com or 281 804 3333 or Harry Bradley at HBradley@LcaNow.com or 713 419 7151
When it comes to revolving credit cards, the formula looks at the difference between the high limit and the balance. Let’s say you have a MasterCard with a credit limit with $10,000 and you have a balance of $2,000 on it. That is a 20% utilization ratio. That is good. The lower the ratio, the higher the credit score. If you are looking for a quick credit score boost, pay down the balance on any accounts that you can.The score will not change instantly. It may take up to 45 days for the credit bureaus to update reports.
It is important to remember CLOSED ACCOUNTS do not help and can hurt if there is a balance remaining. Closed revolving accounts remove available credit and raise the utilization ratio – that is not good.
Part 4 of 6 will follow in the near future
Contact us: Bill Spragg at BSpragg@LcaNow.com , 281 804 3333 or Harry Bradley at HBradley@LcaNow.com , 713 419 7151
How Much Is Owed:
The credit bureaus look at the total amount owed on all accounts compared to the total credit limit as well as how much you owe on different types of accounts (mortgage, auto, etc.). Using a higher percentage of the credit limit will cause concern with the lender / creditor and hurt your credit score. Individuals who max out their credit limits have a much greater risk of default.
For good measure, try to keep revolving credit balances at 30% or less of the credit limit. This will boost scores. Let’s say the balance on a revolving account has reached 79% of the credit limit and you have never missed a payment. The bureau computers will read this account as “Maxed Out” and your score will drop. Paying down the balance will cause the score to improve.
Part 3 of 6 will follow in the near future
For questions, contact Bill Spragg at BSpragg@LcaNow.com , 281 804 3333 or Harry Bradley at HBradley@LcaNow.com , 713 419 7151
Fair Isaac (FICO) and Vantage Scores keep their formulas a closely guarded secret. This can be very frustrating for consumers when they see comments on their credit report like “to many revolving debt accounts” and not know exactly what that means.
Payment History – 1 of 5 categories that determine a credit score
35% of a credit score is determined by payment history. This is because lenders want to know a person’s payment history – past and present. This category can be broken down into 3 subcategories:
- Recency – This is the last time a payment was late. The more time that passes, the better.
- Frequency – One (1) late payment looks much better than a dozen (12).
- Severity – The “Hierarchy of Madness” so to speak, rest on the logic that a payment 30 days late is not a serious as a payment 60 or 120 days late. Collections, tax liens and bankruptcies are credit score killers.
Part 2 through 6 will follow in the near future.
For questions, contact Bill Spragg, bspragg@LcaNow.com , 281 804 3333 or Harry Bradley, hbradley@LcaNow.com , 713 419 7151
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