Understanding What Impacts Credit Scores

I am frequently asked what the best thing is a person can do to improve their credit score. First you need clear understanding of what affects the scores.

Now, I won’t waste time on payment history and paying your bills on time. Those are obvious. I will cover the few that people just don’t realize have a great impact on their scores.

BALANCE – CREDIT LIMIT RATIOS : This is probably the number 1 reason that a person with good credit still has scores in the low-mid 600’s. The closer your total debt is to the total available credit the lower your score will be. It is unpredictable in that you can’t determine how much the score will drop as a result of maxing out your credit limits. The bureaus do not disclose how that is determined. We can safely say that if your balances are at less than 20% of the credit limits you will not be suffering from any of this.

DATE OF LAST ACTIVITY: Many people take this one for granted. Yet it has a huge short term impact on scores. A collection account that is over 2 years old is having far less impact than a collection account that showed up on the report this month. That may seem obvious but what many DON’T realize is that if you pay off a 2 year old collection account your score will probably DROP for a brief time. this is due to the change in status from an UNPAID to a PAID collection account. That status change shows the current date and affects the score negatively. Even though you paid a 2 year old collection account your score can drop because of the RECENT derogatory information. A PAID COLLECTION is still a negative remark.

AGE OF CREDIT HISTORY: It takes time to build a valuable profile and yet only a short time to destroy it. Many people in the last 5 years went belly up after years of solid credit-worthy practices. Much of this was due to the economic issues. The bad credit can stick with you for a while but I have seen many who filed bankruptcy and 2 years later had scores close to 700 again WITHOUT DOING ANYTHING. The scores rebounded because of the number, type, and size of POSITIVE accounts that remained on the reports past. None of them were open or currently reporting but their history caused the scores to rebound.

POSITIVE ACCOUNTS: I have recently been spending all of my time helping people restore their credit by assisting them in getting the negative items removed from their reports. Many ask me what their score will rise to if these things are removed. The simple fact is that the scores are as much related to the positive information that exists as they are to the negative accounts. If there is no positive accounts, or no CURRENT and OPEN accounts on the profile then the scores have nothing to bring them up.

These are a few of the areas I feel needed clarifying. If you need help with your credit profile I urge you to CLICK HERE for help.

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