| Did You Know These 5 Facts About Credit Scores? |
| Articles - Mortgage |
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Most people understand the fact that their payment history has an impact on the credit scores, but there are a few additional factors that are used by the credit bureaus to calculate your score.
Most people understand the fact that their payment history has an impact on the credit scores, but there are a few additional factors that are used by the credit bureaus to calculate your score. Here are 5 facts about credit scores that might surprise you: 1. Income: Your income level has no bearing on your credit score. A person earning below minimum wage could easily have a great score while a millionaire earning six-figures per year could have a really low credit score. The basis behind the scoring system is to determine how responsible a person is with the money they have, not how much money they make. 2. Age of Accounts: When the credit bureaus calculate your score, they study the type of accounts you have and the age of your accounts. An account with some age shows potential lenders that you have never negotiated or consolidated your old debts. Instead you have been able to maintain them a high level of responsibility. If you need to pay off some of your debts, pay the newer ones and leave the older ones alone if at all possible. 3. Don't Pay Collection Agencies: Did you know that paying off collection agencies or debts that are older than two years old won't help your credit score? The Credit Bureaus calculate your score using the last date of activity on your account, so if the last date of activity is over two years old it begins to lose its negative power. Be aware though, that if you negotiate a payment plan with a collection agency verbally, this is considered an agreement and the date can still be listed from the date of that conversation. This form of verbal contact can reset the time period again from today. 4. Debt/Limit Ratio: The credit bureaus reward the people that are able to control their spending habits and are not required to max out their credit cards or exceed their credit limit. Keep all of the balances well below your credit limit if you want to increase your credit score. You will be able to improve your credit score by keeping your balances lower than 30% of your limit. Banks will frequently raise your credit limit because when you are in debt they are making money. While it doesn't hurt to accept an increase in your credit limit, you must act responsibly and use just what you can handled with your income. 5. Frequency of Credit Applications: Did you know a full 10% of your total credit score comes from the number of times you've applied for credit? Every time someone pulls your credit, the enquiry is listed on your credit report. The more enquiries shown on your report, the lower your score will go. If you've recently filled out a bunch of credit applications you should spend some time paying down your balances before applying for anything further. By not applying for new accounts you will be able to increase your score as the older applications drop off. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Author Kurt Novak is a long-time property investor who helps home owners avoid foreclosure. Read his blog to find the best Columbus Loans and how to increase your Crdit Report. |