Monday, March 16, 2009

What You Need to Know About Credit Scores Part 3

1. Payment History = 35%

Are you paying your bills as agreed? The most recent six months have the greatest impact on your score. The highest weight is placed on the highest payment. Usually, this is your mortgage, next would be a car payment, followed by student loan or credit card payments. Bankruptcies, judgments, liens, and collections/charge-offs will negatively impact your score, as will late payments. FYI: The severity of the delinquency is determined by the amount, how much time has passed, and the number of times you were late on an account. It could be 30, 60, or 90 days late.

2. Balances Carried = 30%

This is the actual dollar amounts you owe on various accounts in relation to how much credit you have available. You want this ratio as low as possible. Keep in mind, mortgages and installment loans are not factored into this as much because they are not really a credit line. FYI: If you’re thinking of applying for a home loan, don’t pay off collections or judgments prior to qualifying. By paying off the collection, you are, in effect, starting the collection process all over again; accordingly, your score will take a big hit. Pay off the collection at closing. Once you have the loan, you can handle a few months of a lower score.



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