How to Get A Great Credit Score: Part 1

The credit score – as mysterious as a gypsy palm reading? Kind of, yea. Sometimes I’m surprised that some credit scores are better than it appears they should be and others are worse. Why? I have no idea. This system is not perfect and nobody knows exactly how it works (strange but true). I have a lot of information on this topic for you, so I’m going to split it up into two articles. The first will address how credit scores are derived, what affects them and the range of scores from good to bad. The second article will cover steps to take to improve a poor credit score.

There are some key factors that are used in determining your basic score;

1) Your payment histories – recent late payments hurt a lot. The older a late payment is the less impact on your score.

2) Number of accounts that have balances. If you have a dozen charge cards with balances consolidate them down to 3 or 4. There is no reason to have Macy’s, Nordstrom, GAP, Sears, Kohl’s, Mervyns, etc and owe $89 to each of them! Use your Visa card – they all take it!

3) Proportion of balances to credit limit. This means don’t max out your credit cards. When your credit cards are at there limit it is a big red flag. It’s best to never use more than half of the available balance on a charge card.

4) Length of time accounts have been opened. Old accounts with long payment histories are really great for a credit score. This is the reason why you should NOT close charge accounts that you are not using. Just shred the card and stop using it. This way the account remains active and continues to have a positive impact on your score.

5) Credit inquiries. An inquiry shows up when someone checks your credit report. Lot’s of inquiries indicate you may be trying to open a lot of new credit which is a red flag. If you get a new credit card every six months to get the low intro rate your credit score will suffer because of constant inquiries and the number of accounts which have been opened in the recent past.

6) Collection Accounts and Public Records. If you owe a creditor and you’re not paying they will send the account to a collection agency. This shows up on your credit report – bad. When you get a bill from the doctor’s office that your insurance did not cover do yourself a favor and pay it. Then you can try to get the insurance to reimburse you if they were wrong. Otherwise the doctor’s office will waste no time going to collection. Medical collection accounts are so common it’s ridiculous. Public records include Judgments, Tax Liens, Bankruptcy’s, Etc, all bad and should be avoided at all costs to keep your credit score in the positive range.

What is the positive range? Well, credit scores run from 300 (worst) to 850 (best). Generally speaking, anything under 500 is horrible. From 500 to 575 is very bad and 575 to 620 is bad. Then from 620 to 680 is OK and 680 to 720 is good. If you are over 720 you have excellent credit and you’ll get better rates on everything from credit cards to home loans and even insurance! Your credit score influences the cost of many important things in your life and should be taken very seriously. Next time we’ll talk about how to keep your score high or to get it higher.

By Ken Mascia
Oxford Financial Corporation
Birmingham, Michigan
248-644-1200
www.oxfordfinancial.com

Other finance and mortgage articles by Ken Mascia.

Read the Palms photo by Darwin Bell

[tags]credit score, bad credit, improve credit score[/tags]

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
Visit Website
Search for homes in Oakland County