admin | 
11 18th, 2008| 
What do the numbers in credit scores mean?
“The number ranges from 300 to 850. Although the exact formula for calculating the score is proprietary information and owned by Fair Isaac, here’s an approximate breakdown of how it is determined:
35 percent of the score is based on your payment history. This makes sense since one of the primary reasons a lender wants to see the score is to find out if (and how promptly) you pay your bills. The score is affected by how many bills have been paid late, how many were sent out for collection and any bankruptcies. When these things happened also comes into play. The more recent, the worse it will be for your overall score.
30 percent of the score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 25 percent or less of their limits.
15 percent of the score is based on the length of time you’ve had credit. The longer you’ve had established credit, the better it is for your overall credit score. Why? Because more information about your past payment history gives a more accurate prediction of your future actions.
10 percent of the score is based on new credit. Opening new credit accounts will negatively affect your score for a short time. This category also penalizes hard inquiries on your credit in the past year. Hard inquiries are those you’ve given lenders permission for, as opposed to soft inquiries, which include looking at your own score and have no effect on the score. However, the score interprets several hard inquiries within a short amount of time as one to account for the way people shop around for the best deals on a loan.
10 percent of the score is based on the types of credit you currently have. It will help your score to show that you have had experience with several different kinds of credit accounts, such as revolving credit accounts and installment loans.”
This breakdown of credit scores came from How Stuff Works: http://money.howstuffworks.com/personal-finance/debt-management/credit-score1.htm
When a person has bad credit can they climb out of it and get good credit?
Awesome question! Yes, a person can climb out of bad credit, but it can take several years to really turn credit around. Just like any serious problem it doesn’t just happen overnight; the problem occurs after several poor decisions over a period of time. So, to correct the problem you have to make a series of good choices over a period of time.
Your credit is your financial reputation, so you (if you have bad credit) have to rebuild your reputation and that takes time. Credit doesn’t get bad overnight and it doesn’t get good overnight either. You have to make a decision about what kind of credit you want and line your actions up with what you chose to do.
Your credit is like your financial reputation.
It is just like a friend who always borrows money and never repays you. After a few times of loaning them that $5’s they never give back you wise up and realize they are never going to repay you. So you stop lending them your money. But what happens when you have a friend who always gives back what they borrow? You as a lender happily let them borrow, because they have a great reputation. Their is no question about their integrity, because they have proven it to you.
Credit is the exact same thing. Bad credit is someone with a bad financial reputation, and good credit is someone with a good financial reputation. The lender looks at your credit score and determines what kind of reputation you have, because he wants to know you’ll be the kind of person with integrity to pay him back.
If you have any questions about credit send me an email generationwisdom@yahoo.com or drop me a comment at the end of this posting.
Your credit reputation is very important! With bad credit or no credit you’ll be over charged by companies, banks and you may not even qualify for credit. Here are some reasons you’ll want good credit as an adult: to get a cell phone account, have decent car insurance rates, receive home loans or car loans, get credit cards…the list goes on. At one financial meeting I went to the speaker said soon employers will judge your ability to do a job you are applying for based on your credit scores. For all these reasons and more I want to stress the importance of having a good financial reputation.
Take care of your financial future today by learning what you need to do in order to build a great financial reputation through your credit score.