The subject of credit scoring has become an increasingly hot topic, and for good reason. For many years, the general public only associated the concept of credit scoring with the need to purchase high-ticket items such as a new car or a home. Today, credit-scoring goes much further. Your credit score can affect your ability to get a good rate on commodities such as car insurance, cell phones, or even determine whether or not you get the job that you want. Indeed, the financial snapshot provided by the credit score has also become a gauge for many employers, especially those who seek to place employees in a position of financial responsibility.

Credit scores are comprised of five factors. Points are awarded for each component, and a high score is most favorable. The factors are listed below in order of importance.

1. Payment History-35% Impact
Paying debt on time and in full has the greatest impact on your credit score. Late payments, judgments, and charge-offs all have a negative impact.

2. Outstanding Credit Balances-30% Impact
This factor marks the difference between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home.

3. Credit History-15% Impact
This portion of the credit score indicates the length of time since a particular credit line was established. A seasoned borrower will always be stronger in this area.

4. Type of Credit-10% Impact
A mix of auto loans, credit cards, and mortgages is more positive than a concentration of debt from credit cards only.

5. Inquiries-10% Impact
This percentage of the credit score quantifies the number of inquiries made on a consumer’s credit within a 6 month period.

More information on credit to come…….tune in again!