Here are a couple of rules of thumb for your consideration. Your minimum credit score must be at least 650. If your credit score is below 650, there are ways to fix it. Is that how it works…
HAS. You can challenge anything on your credit report. If the merchant cannot provide proof of their claim, then the item must be removed from your credit report. For example, if Department Store X says that you did not pay off the $72 balance on your Card X in 1997, and you say that you did, then Department Store X has 30 days to provide documentation showing that the invoice is not paid. . If they can’t prove your claim, the outstanding debt is eliminated and you move toward a higher credit score. If Department Store X is right and you owe them $72, then you know the problem and have an opportunity to pay the $72…again, you’re moving toward a higher credit score.
b. Obtain and review copies of your three major credit reports annually, more frequently if you approach critical junctures where your credit score is especially important.
against Between reports from the Federal Trade Commission (“FTC”) and CBS News, it is estimated that between five and eighty percent of credit reports contain errors. Some mistakes are good for you and others not so much. When I was twenty-five years old I reviewed my credit reports and was overjoyed to learn that not only had I purchased a new car, but I had paid for it with a perfect payment history. It was great for my young credit history – I never found the car.
d. Your credit score contains five components. Here are the five components and their degree of importance by percentage:
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Payment History (35%) – Here, credit bureaus (CBs) look at mortgages, credit cards, installment loans, retail accounts, adverse public records like bankruptcies, judgments, judgments, liens, garnishments, late payments, etc. . If you have past due payments, the CBs will look at (a) the past due amount, (b) the amount of time past due, (c) the number of past due accounts.
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Amounts Owed (30%): CBs are reviewing the type of accounts you use and the amount of credit you are using relative to the credit available to you. For example, and other things being equal, a person who has balances equal to 95% of the available credit on ten personal credit cards totaling $50,000 in outstanding debt will have a lower credit score than someone who has balances of 50%. on three credit cards for a total of $10,000 of outstanding debt.
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Length of credit history (15%): Central banks are looking at specific types of accounts, how long the accounts have been open, and the level and timing of activity within the account. Surprisingly, for credit scoring purposes, it seems that it’s actually better to have credit accounts with outstanding balances (within reason) than no open accounts or credit history. Being debt free can actually lower your credit score. I have a friend who is a very astute and very successful former international banker. He has done business in more than 20 countries and has lived in nine countries. This is a person with exceptional success, wealth, and highly responsible money management practices. He was turned down when he applied for a credit card at the same bank where he worked. Reason: No US credit history.
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New Credit History (10%) – In short, CBs look to see if you have been opening or trying to open a lot of new accounts recently. As you can imagine, someone who is thinking of lending you money gets very nervous when they find out that you are borrowing money from everyone.
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Type of credit used (10%): Central banks look at the stock of debt spread across different types of debt, from credit cards to mortgages and secured or unsecured.
Your credit score is based on all of the above items. There is a pass-fail circumstance for each of the categories. Your score is produced in aggregate and that score is constantly changing. One person’s score and financial profile will be different from someone else’s. The information presented here is for the thick part of the Bell Curve, but it does provide solid guidelines.
ME. If you’re focused on an acquisition (or other type of lending) and your score is below the 650 mark, keep in mind that a business partner’s score of 700 or higher may help offset your score. When lenders are considering borrowers’ qualifications, they look at the entire “borrower,” be it one person or a legion of people.