Have you ever wondered how lenders evaluate
whether or not you’re a good credit risk? After
all, we’re constantly being told about how important
it is to maintain a good credit score, but it seems
that the actual “how to’s” of that
aren’t so simple. Different lenders—whether
it’s a bank, car dealership or credit card issuer—have
different methods for determining whether or not to
extend credit—AND at how much interest. (The
better the credit score, the lower the interest rate—which
not only means lower monthly payments, but will also
result in a lower overall balance, as well.)
Luckily, there are some things that are just
good sense.
Here’s a list of things that everyone should
do to ensure that their credit rating stays right
where it should be.
35 percent of your credit score is determined
by…
…whether or not you make your payments on time.
Everyone knows that they should pay their bills on
time, but sometimes it’s too easy to let one
or two bill slip. Lenders will report you to the three
credit agencies if you are 30, 60 or 90 days late
with your payment. Be sure to mail in your payment
with plenty of time for it to be stamped as “paid
before the due date.”
30 percent of your credit score is determined
by…
…how much credit you are carrying. If your
credit cards are all maxed out, it will definitely
hurt your credit rating because lenders will see you
as not being able to keep up with your lifestyle.
If, on the other hand, you have some untouched available
credit left on your cards, you’ll be seen as
a better credit risk.
15 percent of your credit score is determined
by…
…how long you’ve held credit accounts.
If you’ve been using credit for years, then
you’ll do better in this part of the score.
10 percent of your credit score is determined
by…
…how much new credit you apply for. The good
news is that if you are shopping for a loan—such
as a home mortgage or car loan—this won’t
affect your report negatively. But if you’re
applying for a slew of credit cards all at once, it
will. Don’t just apply for every new application
that comes your way, but instead, investigate each
one thoroughly and then determine whether or not it’s
the right deal for you.
10 percent of your credit score is determined
by…
…the types of credit that you hold. Most people
have a mixture of home mortgages, car loans, bank
loans and credit cards, and lenders will look to see
which types you have, and whether or not you are handling
them properly.
If you’d like to find out what your credit
score looks like, or just learn more about it, visit
FICO’s website at http://www.myfico.com/
Aug 4th 2005
