Today we're going to be going over all of the different categories that make up your credit score.
So we're going to go through each of them individually and we're going to talk about basically the nuts and bolts of each of those categories. how much weight is actually affected on your credit score and we're going to go through all of them.
EVERYTHING YOU NEED TO KNOW ABOUT CREDIT SCORE
So you guys can learn something new about your credit score.
Obviously, the higher your credit score the better because money is a lot cheaper to borrow when you have a higher credit score and if you are getting loans and stuff like that, then you definitely want to have the lowest interest rate possible because that's going to save you the most money in the long run.
So for example, if you went out today and you were looking for a car loan, you could expect a rate of about 2.5 percent if you have excellent credit now, if you don't have good credit, you could actually get a rate of about 17 and when we're talking a five-year loan on an average amount of money borrowed that's going to cost you thousands of dollars in interest just in the difference between those interest rates.
So you definitely want to have a good to excellent credit score so that you always get the best interest rates.
Now, there's a lot of different ways that your credit score can be broken down.
But the method that i'm going to be referring to in this article is called the vantage score 3.0.
Now, this was developed by all three of the major credit bureaus so it is widely used by a lot of different lenders out there.
It's not to say that some of them might not use it because they could use other methods but this is the one that i'm going to be talking about the vantage score 3.0.
So that being said your credit score actually ranges from 300 at the very bottom and then it can go all the way up to 850 which is the best credit score possible.
Now in between all of those numbers, you're going to be tiered.
So obviously the lower range of numbers you're going to be in the poor category.
And then as you move up in your score, you'd move to fair credit good credit and then eventually excellent credit which is where you really want to be now i'll talk about all of the different categories that make up your credit score because as far as the 850 points is concerned they are broken down into different categories.
And each of those categories is weighted a lot heavier than others.
PAYMENT HISTORY
So we're going to start with the highest tier the highest category, which is your payment history and that's worth 40 percent of your entire credit score.
So you definitely want to be on top of your payments don't make anything late because as far as late fees go they're not supposed to be reported to the bureaus unless they're 30 days past due but personally i would never risk that i don't want to have a late payment on my history at all because like i said, it covers 40 of your entire credit score.
So you really want to be careful here and not to mention if you are late on a payment your lender they can charge a late fee and that's separate from the credit bureaus.
So even if it's not being reported, you can still pay those late fees, which you really don't want to be doing unless you absolutely have to and then i also want to mention that if you're more than 60 days past due it's even worse for your credit score because there's more penalties involved.
And also if you do have late payments on your credit report, they can actually stay there from seven all the way to ten years.
So definitely avoid late payments at all costs.
CREDIT HISTORY
Now the next category that i want to talk about is called your credit history and this accounts for 21 of your overall score.
So obviously it is important here that you start to build your credit history while you're young because the longer you have that history established the higher that that tier can be as far as your overall credit score goes.
So for instance, if you're 18 years old you get a credit card and when you're 28 years old and if you've had that card open for 10 years then that's definitely going to look good on your credit history because you've had it so long and honestly for a lot of us out there your credit history is just going to happen naturally.
So for instance when you're younger, you might open a credit card eventually, you might get a car loan something like that.
All of those types of things on your credit are going to build that history and a lot of that just comes natural as you age and you progress in life.
There's also a lot of credit cards out there that are made for people with a little to no credit history.
So if you're just starting out and your credit's really low or you don't even have any then there are credit cards out there that can help you with that now just keep in mind you want to be responsible with your credit cards and please don't make any late payments because remember that's 40 of your entire credit score.
now as far as credit history is concerned. If you do happen to have a credit card that you don't use very much and you're thinking about canceling it.
It might be in your best interest just to keep it open and use it once in a while because if you've had that card for a very long time it is helping your credit history because i personally i had a credit card open for 12 years and i canceled it just because i wasn't using it very often but honestly that history could have been helping itself even more today because i canceled it about 10 years ago.
So that's just something to think about.
CREDIT USAGE
now the next category that i want to talk about is called credit usage and this takes up 20 of your overall score now basically the way that i can describe this is it's how much you're spending on your credit cards versus how much is available?
So the lower amount you spend versus how much you have available is always going to be a good thing and it's going to help out your credit score.
So for example, if you had two credit cards and each of those had a five thousand dollar limit, then you'd have ten thousand dollars of available credit.
Now if you spent three thousand dollars between the two cards then that would be a thirty percent spending rate according to how much you have available.
And thirty percent is actually right where you wanna be that's right at the line between where it's going to help or hurt you so if you can keep that below 30 percent that's going to help your credit and if that's above 30, then it's going to start to hurt your credit score.
So just make sure that you pay down your credit card balances every single month because as long as you keep that nice and low that's called your utilization score as long as it's below 30, then you are good to go and you're helping your credit.
But if it's above that try to fix it because it is hurting your credit score.
TOTAL BALANCES
Next up is called your total balances and this counts for 11 percent of your total credit score.
Now what this is is it's an accumulation of all of your loans and your credit cards.
So we're talking mortgages auto loans credit cards everything like that.
They're all going to be lumped up.
And as you pay them down slowly it's going to slowly also start to help your credit score as well. So this is called your total balances.
And that's basically what it is and like i said this does include your credit cards as well.
So as you pay down those credit card balances, it's not only helping this category, but it's also helping the other category of the credit usage as well.
Now the next category is called credit checks and this one really isn't a big deal because it only counts for five percent of your total score, but just keep in mind that whenever you apply for a new loan you are gonna have to have your credit checked and that can negatively affect your score.
If you have it checked too many times within a two year period because what they say is that you can have up to two that's considered good within a two year period anything after that it can start to affect your score negatively, but just keep in mind.
It's probably not going to do very much to your score because it's only worth five percent.
But let's say that you happen to be shopping for a mortgage and you have your credit pulled five different times through five different lenders because you're just trying to find the best rate.
Well that generally should only count as one inquiry because as long as you have those checks within 14 days, they say that that should only count as one rather than a whole bunch of them because obviously they know that you're shopping around.
AVAILABLE CREDIT
the last category is called available credit, and this one really isn't a big deal because it's only worth three percent of your entire score, but the way that i look at it is it's just how much do you have available in your credit line?
So for instance, if you have ten thousand dollars worth of credit cards, and you're spending nine hundred then you'd have nine thousand one hundred dollars available to you, which is a good thing because it's under that thirty percent mark, so obviously, this category is also being affected by paying down your credit cards and your loans and things like that.
So as long as you're getting all those things under control getting them paid down then you're going to help that category and the other categories as well.
So this is all about credit score, now we think you understand what is a credit score & how it works.