An excellent credit score range can only be accomplished one way: by maintaining an impeccable record of financial health. Lenders will look at your score to determine how much money, if any, they can trust you to repay. The amount of credit you have available as well as how you have handled debts in the past will affect how a creditor is going to view your application. Having an unsatisfactory score will make rates skyrocket as well limit your resources available to secure a loan.
There are five main factors that FICO uses to determine your credit score. Mastery over these areas will ensure your credit rating will be perfect and lenders will be anxious to secure you the best deals possible. It takes work and dedication to get a great score. Nobody can just avoid credit and hope that their score will be good – you must establish a reliable credit history that instills trust.
The areas that you need to be watching are as follows:
Types of Credit Used
Are you successfully balancing a mix of mortgage, credit cards, installment loans, and retail accounts? The ability to multi-task your financial life is something that is praised by lenders. They will see that you have the ability to manage the accounts you already have and that you are capable of taking on another. However, if you have a huge mix of credit accounts but you favor some over others, this will be very apparent on your credit history. No lender wants to run the risk of taking on yet another delinquent account.
New Credit
Any time your financial activity fluctuates in a significant way your credit score becomes “red-flagged”. If you have made a high number of credit queries or recently opened accounts, a lender will assume that you have been having financial difficulty. Sometimes opening new accounts is a symptom of paying off debt with debt, which will immediately turn off any lender. Since new credit only accounts for about ten percent of your credit score, you still have plenty of room to grow even with significant new financial activity.
Amounts Owed
This is a pretty big one. FICO takes into account all of the amounts owed on accounts and number of accounts with balances. If you have recently closed an account with a balance your credit will appear to be maxed out, which will make a huge negative impact on your score. Having a large amount of credit available means that you have room for emergencies and any lender will take this as a guarantee that they will get paid on time.
Credit History Length
It is possible to have a great credit score without having much to back it up. In this case, your length of credit history is what is holding you back from good rates and loan approvals. In order to be trusted with a loan with good rates, you need to have a good history of payment. Banks and lenders will be looking at the amount of time that has passed since account activity and new accounts opened.
Payment History
This category is the most heavily considered of all. Payment history accounts for 35% of your FICO score, meaning that you need to have a reliable history to back up your claims. Lawsuits, mortgages, bankruptcy and all other adverse public records fall into this section. The severity and number of past-due items will be weighed as well.
Maintaining an excellent credit score range is much easier than obtaining one. There are many ways to repair damaged credit, but it can take years to reach a level that will present significant savings. Prevention is the best policy when it comes to credit. Don’t jump into the game too fast and regularly check your credit score.
