Payment history is the main factor in Credit Score

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Payment history is the largest factor in Credit Score
2 years ago
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While our credit score can often elude us, it is a crucial component to our financial life. A personal credit score is a reflection of a person's ability to repay debts and is what lenders use when creating a lending decision. So, as this factor is a crucial factor in your life, it is important to not only understand what a credit score is, but how you can make changes to increase your credit score and show lenders that you are not a credit risk.

One of the first things to learn about your credit score is what it is comprised of. Here is a simple breakdown of what your FICO credit score involves:

- Account Payment History- 35%
- New Credit- 10%
- Types of Credit- 10%
- Amounts Owed- 30%
- Length of Credit History- 15%

As you will review the list of what your credit score involves, you will notice that over 1/3 of your credit score is your account history. Your past patterns of payment history are the single largest factors in determining what your credit score is.

Learning How to Use Credit
While credit is a part of basically every person's financial life, how a person uses their credit is important. Financially responsible credit use involves leveraging credit when it does not make sense to pay cash. In addition to learning how to use credit, it is important to understand several of the credit types available to consumers and how they should be used.

Secured Credit
If a person does not have credit or is looking to rebuild their personal credit, a secured credit or a secured loan is an excellent strategy. Secured credit is a strategy in which the credit is issued based upon a deposit by the consumer. As the consumer repays their own funds, their credit is established. And, working with secured credit over time can enable you to apply for and be approved for unsecured credit over time.

Retail Credit Cards
In addition to secured credit, retail credit cards are an excellent credit rebuilding strategy. And, as they are generally easier to obtain than from major credit cards. If you are considering acquiring retail credit card accounts, it is advised to only acquire 1-2, so that you are not building too much available credit or too much credit used. Instead, use the relationships to establish a positive credit re-payment history.

Transition to Unsecured Credit Cards
After you have built initial credit with secured credit cards and retail credit cards, it is recommended to apply for credit from 1-2 of the larger credit card companies such as MC, Visa or American Express. When choosing an unsecured credit card, choose one that potentially offers you additional benefits such as bonus points or air miles so that you can leverage those benefits in addition to your ability to use their credit limits.

Hire Professionals
If you are looking to build personal credit or to re-build personal credit, consider working with a professional. If you are looking to build personal credit, you may consider working with a personal financial advisor as they can work with you on not only building your personal credit, but also your personal savings. If you are looking to re-build your personal credit, or to remove the errors in your credit report you may want to consider working with a credit repair company or organization. These groups can work to remove negative items from your credit as well as to teach you how to rebuild your credit.

By Melissa
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