Here are a associate of general rules for your consideration. Your minimum credit score needs to be at the minimum 650. If your credit score is below 650 then there are ways to fix it. Here’s how it works…
A. You can challenge anything in your credit report. If the merchant can’t provide proof of their claim, then the item must be removed from your credit report. For example, if Department Store X says that you didn’t pay-off your $72 balance on your X card in 1997, and you say that you did, then Department Store X has 30 days to provide the documentation proving that the bill is unpaid. If they can’t prove their claim, then the noticeable debt is removed and you’re moving toward a higher credit score. If Department Store X is right and you do owe them $72, then you now know the problem and you have the opportunity to pay the $72… again you’re moving toward a higher credit score.
B. Get and review copies of your three major credit reports yearly-more often if you are nearing pivotal junctures where your credit score is especially important.
C. Between the reports from Federal Trade Commission (“FTC”) and CBS News, it is estimated that somewhere between five and eighty percent of credit reports contain errors. Some errors are truly good for you and some are not so good. In my mid-twenties I checked my credit reports, and I was very happy to learn that not only had I purchased a new car, but I paid it off with a perfect history of payments. It was great for my young credit history-never did find the car.
D. Your credit score contains five elements. Here are the five elements and their degree of importance by percentage:
- Payment History (35%)-Here, the credit bureaus (CBs) are looking at mortgages, credit cards, installment loans, retail accounts, negative public records like bankruptcy, lawsuits, judgments, liens, garnishments, past due payments… etc. If you have past due payments, the CBs will look at (a) amount past due, (b) amount of time past due, (c) number of accounts pat due.
- Amounts Owed (30%)-CBs are reviewing the kind of accounts you use and the amount of credit you are employing relative to the credit obtainable to you. For example and all else being equal, a person carrying balances equaling 95% of credit obtainable on ten personal credit cards for a total of $50,000 noticeable debt will have a lower credit score than a person carrying 50% balances on three credit cards for a total of $10,000 noticeable debt.
- Length of Credit History (15%)-CBs are examining specific account types, how long the accounts have been open and the level and timing of activity within the account. Amazingly, for credit scoring purposes it appears that it is truly better to have credit accounts with noticeable balances (within reason) than to have no accounts open or no credit history. Being debt free can truly lower your credit score. I have a friend who is a very perceptive, very successful former international banker. He has done business in more than 20 countries and has lived in nine countries. This is a person with exceptional success, wealth, and highly responsible money management practices. He was turned down when he applied for a credit card at the very bank where he worked. Reason: No U.S. credit history.
- New Credit History (10%) – In short, the CBs are looking to see if you have been opening or attempting to open lots of new accounts recently. As you might imagine, someone who is thinking about lending you money gets very nervous when they discover you are borrowing money from everyone.
- kind of Credit Used (10%)-CBs look at the balance of debt as distributed throughout the various types of debt from credit cards to mortgages and secured to unsecured.
Your credit score is based on all of the items above. It is not a pass-fail circumstance for each of the categories. Your score is produced in the aggregate and that scoring regularly changes. The scoring for one person and their financial profile will be different from another person. The information presented here is for the fat part of the Bell Curve, but it provides substantial guidelines.
E. If you are focused on an acquisition (or other kind of loan) and your score is below the 650 mark, observe that a business partner’s score that is 700 or higher can help to off-set your score. When lenders are considering borrower qualifications, they look at the complete “borrower” whether it is one person or a legion of people.