To start rebuilding or improving your credit, it's important to understand what elements influence your score and what you can do to improve them.
The Basic Components of a Credit Score
Your credit score is based on a specific set of criteria combined together into one value. This criteria is below:
- 35% of your score is based on payment history (i.e. payments made on-time, more weight is placed on current payment history)
- 30% of your score is derived from your credit capacity (revolving balances vs. available credit limits)
- 15% of your score is determined by the length of credit (how long are your terms)
- 10% of your score is based on your accumulation of debt in the last 12 to 18 months (# of inquiries & opening dates)
- 10% of your score is determined by the credit mix (installment loans can raise your score, balances owed on revolving can your lower score and the number of finance company loans lowers the score as well)
Approximate Credit Weight Each Year
- 40% = current to 12 months
- 30% = 13 to 24 months
- 20% = 25 to 36 months
- 10% = 37 months and over
What Actions Hurt a Score?
- Missing payments (regardless of the dollar amount, it will take 24 months to restore credit with one late payment)
- Credit cards at capacity (i.e. maxing out credit cards)
- Closing credit cards out (this lowers available capacity)
- Shopping for credit excessively (auto & mortgage shopping do not have a negative effect)
- Opening up numerous trades in a short period of time
- Having more revolving loans in relation to installment loans
- Borrowing from finance companies
What Will Improve a Score?
- Paying down credit cards
- Not closing credit cards
- Continue to make payments on time (older late pays will become less significant with time)
- Slow down on opening new accounts
- Acquire a solid credit history with years of experience
- Moving revolving debt to installment debt
What Doesn't Affect the Score?
- Debt ratio
- Length of residence
- Length of employment
Scoring "Cheat Sheet"
Understanding the number of your credit score can be confusing. This may help clarify your number and show you what you can do to improve it.
- Almost impossible to score 700+ points with any current delinquency
- Almost impossible to score 700+ points without good capacity
- Will always score 700+ with good capacity and no public records, current or past delinquencies
- Will always score in the 500 point range or lower with no capacity and current delinquencies
- Will score in the 600 range if doing well with how you pay and OK in capacity
- Will score in the 600 range if doing well with capacity and OK with how you pay
Impact of Bankruptcy
Bankruptcy can have a devastating effect on your credit score. Not only will your score plummet, your bankruptcy will be present on your credit report for up to 10 years, hurting your ability to apply for future credit.
- 730 Score (time of Bankruptcy) Loss of 200 Points = 530
- 560 Score (time of Bankruptcy) Loss of 30 Points = 530
Set up a Complimentary Review of Your Credit Score
Through our SmartScore program, an Education First rep will review your credit report with you and discuss ways to improve your credit score! Visit here to request an appointment.