How is my credit score determined?
There are 5 components that go into making your credit score.
- Payment history is an indication for lenders and creditors whether an individual is a lending risk due to a history of late or missed payments (bankruptcies, past due accounts, collections, judgments, etc. Three factors will determine the size of the deduction in score:
a) Time passed since the payment blip
b) Number of missed payments
c) How bad the blunder was
- Amounts owed on credit Keeping the balances outstanding to less than 65-75% of the available credit limit will INCREASE the score. Balances above 75% of the available limit will DECREASE the score .
- Length of time of credit history Favorable weight goes to those trade lines with the longest history. Past credit behavior is a good indication of future behavior, and this establishes a perceived foreseeable pattern
- New credit & inquiries This is measured by the number of credit inquiries: 4-6 inquiries in the last 12 months is acceptable >6 inquiries in the last 12 months will impact the score negatively *Do not allow anyone to pull a credit report on you unless it is absolutely vital* Many people inadvertently disqualify themselves from attaining the best rate as they are shopping for a mortgage. Your Beacon score drops each time a bank pulls a credit report, sometimes eliminating the chance for the best mortgage. During the financing process, we pull only one credit report and forward it to all the lenders.
- Types of credit Different forms of credit carry different weights. Having at least one strong trade line is necessary. stronger Credit cards (Visa, Mastercard, Amex) Personal Lines of Credit Home equity lines of credit Department store cards Instalment loans (car loans)* weaker Student loans* *Although these are weaker avenues to build credit, missing payments on these will still negatively impact your overall credit.