Understanding your credit score
Before you apply for credit for a major purchase such as a house, you should always check your credit score for problems.
Credit scores at the 3 credit bureaus are all about risk. You must have at least one account such as a credit card, that has been open for at least 6 months, which is usually not a problem for most people. While banks love customers who keep a high balance and just make the minimum payments at sky-high interest, it’s better for your credit report and certainly your pocketbook to pay off your balance in full every month so that you don’t get socked with finance charges.
There are 5 items evaluated in credit scores.
Payment history comprises about 35% of what goes into building your credit score.
Owing a lot of money on credit cards tends to suggest to creditors that you are overextended, or otherwise maxed out on your credit cards and are therefore more likely to make late payments, or miss one alltogether. Money owed vs credit limit figures in 30% of your credit score.
Opening a large number of new credit line accounts within a short amount of time is not recommended. This tends to make you appear as a likely credit risk, especially when you have a short history of established credit. Frequent inquiries to your credit report within a short amount of time, tends to look bad.
Average account age is calculated on your total number of accounts, so opening a new one, shortens the average account age, which negatively effects your credit score.
Types of credit only comprises about 10%. The easiest and most popular way to build credit is to get a credit card. If you can quality for an unsecured card, that’s always the better choice over a secured card.
