Today I want to break down and establish why an 800 credit score is completely different than a brand new 800 credit score, and I’m going to show you what the differences and I’m going to show you five factors that you need to focus on instead of the score itself.
So take a look at this first credit report. It says that he’s got 802 808 and 805 credit scores, excellent credit by any standard, however he only has two years of credit history and only got three accounts a store card, a student loan, and an authorized user account that belongs to one of his parents that they let him use. If he were to miss a payment or get a late-payment his 800 credit score on average would probably tumble down all the way into the 750 just by having one 30-day late payment because he doesn’t have enough credit history.
This bring us to a major flaw in our FICO system you can artificially have a high credit score just by having a short excellent payment history.
Now let’s look at another credit report that is a little bit older, he is in his forties and he’s got also 790 802 805 credit very very respectable scores. Excellent payment history he’s never missed a payment before in his entire life, and he has 20 years of credit history, and 16 accounts. If he was to get a 30-day late his score might only be impacted maybe 5 or 10 points as opposed to 50 or 60 are young entrepreneur friend so as you could see there’s a lot of other factors that matter when it comes to credit score next we’re going to cover what factor is and what to look for instead of the actual credit score.
This one is pretty self-explanatory, basically don’t make late payments. The two tips I could give you is don’t buy stuff that you can’t afford to pay back and second tip is set everything on auto-pay. I know back in the day when everything used to be done by paper checks payments things could get lost in the mail, and you get hit with a late payment. This isn’t the case today, set everything on automated payment and not even have to worry about it. Keep in mind if you do happen to miss a payment it’s going to have a diminishing impact, which means that as time goes on it’s going to have less of an impact a late-payment that happened four years ago is going to have less of an impact on your score then something that happened last month.
Amount owed is how much balance you carry on your personal credit cards, and how much you have left on your installment loans. So the number one tip I could give you is do not ever go over your credit limit. Let’s say you have a $10,000 credit card, do not put any more than $10,000 on it. Ideally you would want to keep it under 30%-40%. If you’re able to make weekly payments instead of monthly payments it’s even better, and the reason is quite simple.
Your lender reports your account to the credit bureaus one day a month, so by making payments weekly, you are eliminating the chances of your account being reported with a higher balance.
This is a measurement of when your oldest account was established if that account is closed when was it open so basically when your credit profile was established with a credit bureaus. So start building credit as soon as you can, do not wait until you need credit to apply for credit.
New accounts are more harmful to your credit than inquiries. The major negative implication of having several new accounts on your credit report is that your new accounts won’t have an established payment history, which reduces 35% of your score (think back to the 20 year old with 800 credit), if your report shows that you were making $1,200/month in payments every month, but in the last six months you took out enough debt to double your monthly debt payments to $2,400, it can cause your loan to be denied due to a lack of payment history on the additional $1,200/month you took out . Inquiries are eventually going to drop off your credit report, and they’re going to have a diminishing impact as time goes on, so it’s not a big deal if you get an inquiry or two on your credit.
Having a mix of credit is a good thing. The more diverse your report is, the higher the odds are that you’ll have a comparable account for any new credit that you would be applying for, which increases your changes of approval as well as better terms.
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