Welcome back to Lexington Law and our credit webinar series.
Today we’re going to discuss what makes up your credit score.
The largest and biggest one at 35 percent is your payment history.
Next at 30 percent are your amount owed.
From there at 15 percent we’ll discuss your length of credit history and then your two last components at 10 percent each are types of credit in use and your new credit.
Let’s discuss the biggest section of your credit score: payment history at 35 percent. Working with Lexington Law you’ll be able to better your payment history by working to remove those questionable, derogatory, or negative marks on your payment history. We’re referring to those late payments. Lexington Law Firm will work with you to dispute those negative items that are inaccurate, misleading, or unverifiable through the credit bureaus and also with creditors directly. This will take care of your 35 percent payment history.
Next, let’s move on to the amounts owed. 30 percent of your credit score is built up by the amounts owed. When we talk about this, we’re referring to the debt you have in comparison to the amount of money that’s been lent to you. So let’s say you have a card with a thousand dollar limit and your balance is at five hundred dollars. You’re obviously at fifty percent of your credit limit. This is about the point where you’re gonna start to affect your credit score negatively – anything past 50 percent of your credit limit will probably start to lower your credit score. So some good advice may be to speak with a professional about your amounts owed and determine exactly what would be beneficial in your scenario. Whether it’s to transfer some accounts, transfer some balances, pay down some accounts. Depending on your situation you might want to do things differently. This is why it’s always important to discuss this with a professional.
When we’re referring to amounts owed we’re talking about two different kinds of accounts: installment accounts and revolving accounts. When we refer to our installment accounts we’re talking about auto loans, mortgages. We’re talking about those loans that have a payment date. So let’s say they’re on a four-year payment plan or thirty-year payment plan where in comparison are revolving accounts are those accounts that don’t necessarily have an end date. we have a monthly bill obviously if we rack up any balances but there’s essentially no end date. There may be an expiration date but we can always renew those accounts, they can revolve. Kinda like a revolving door, keep going forever.
Moving on, let’s discuss length of credit history. This is gonna make up 15 percent of your credit score so it’s definitely important. Your length of credit history – we’re talking about how long your accounts have been opened. So obviously an account in good standing with no late payments that’s been open for let’s say four years is probably gonna build your score more so than account that was just open four months ago.
So length of credit history to build a strong credit score in this aspect we want to have an account has been open for a while. Now if you’re thinking right now I only have a few open accounts that are just recently opened, maybe you’re just a recent student, or just younger and just getting into the credit industry, and you don’t have a lot long, open accounts, there are other ways you can build a positive credit history.
The way you can do that is by working with a professional. Lexington Law Firm as I’ve mentioned previously offer great credit score coaching. In these coatings, they can discuss different ways and avenues you can research and dive into to better and strengthen your length of credit history.
At 10 percent next we’re gonna talk about new credit. This is only 10 percent of your credit score so it’s not the biggest factor but it’s still important if you look at our industry today and recognize that every point counts. New credit we’re talking about – inquiries. How recently you’ve been applying for credit or what new accounts you just recently opened. So obviously if you go and apply for a mortgage or you apply for a car loan they’re gonna run your credit. They’ll look at your credit score and determine if you are or are not a credit risk. When they do this are also gonna put a little ding on your credit report or inquiry. An inquiry should stay on your credit reports for two years. The first year that they’re on your credit report they could be hurting your score or pulling your score down. The second year of the credit reporting, they’ll just be on the report but they won’t be affecting your score negatively.
To finish up, let’s talk about the last 10 percent your credit score or the types of credit in use. For a good credit score we’re gonna be looking for different types of credit. We don’t wanna see ten different revolving accounts and no installment accounts. Keep in mind that the credit score was built originally for banks and lenders to better understand you and your payment information so they wanna know whether or not you understand how to run your finances, and how to pay your bills on time. So the different types of credit in use if we’re wanting to maximize this ten percent of our credit score it’s probably wise to have a variety of different kinds of account – revolving accounts, installment accounts.
And again, I’m not giving you advice to go ahead and open up all sorts of different accounts. It’s always important and smart to speak with a professional about your situation before you actually go and open any other new accounts or close some previous accounts. So as you can see, your credit score has a lot built into it.
If you have any questions about your credit score or you’d like to learn more about what goes into your credit score, don’t hesitate to speak with a paralegal at Lexington Law where they’d be more than happy to help educate you, help you learn more about your credit score.
That’s all we have for today guys. Hopefully you’ve learned a little bit more about your credit score And don’t hesitate to give us a call if you have any other questions.