Building Credit Score
In order to give you a credit score, the system tracks and measures:
• The number of credit accounts you’ve had
• How long you’ve had credit
• How many times you’ve been late
• How much you owe compared to how much credit you have
• How many times you’ve applied for credit in the last 2 years
• And the number and kinds of super-bad listings (collections, consolidated loans, bankruptcy, etc.)
Your FICO score can change whenever your credit report changes. But your score probably won’t change a lot from one month to the next. In a given three-month time period, only about one in four people has a 20 point change in their FICO score.
I have 2 store credit cards that I mainly use for larger purchases where I get interest free financing for like 12 months or 18 months depending on the amount of the purchase.
MYTH: Paying my credit card charges early helps my credit score.
FACT: There’s nothing on your credit report that shows when a bill is paid, only whether it was paid on time.
Those two individual retailer cards probably means you have open lines of credit, which the credit bureaus tend to view as potential trouble and could potentially be hurting your credit score.
What are some things that we can begin doing now to have our credit scores in the best possible condition when it comes time to apply for a home loan in 5 years?
Needing a credit score is a common myth that has been perpetuated by credit card companies, banks and others who have a financial stake in making sure that you believe having a good credit score means you’re winning financially.
The truly wealthy (or those that will be wealthy someday) know that their credit scores (and credit bureaus) really don’t matter in the long run.
MYTH: By being responsible with your checking, savings and investment accounts, you will positively impact your credit score.
FACT: Like income, your checking, savings, investment account activity and net worth – anything other than debt is not reported to the credit bureaus and does not affect your credit score.
But to answer your question, if you follow this criteria, your credit score will improve:
• 35 % Debt History (What is your track record?)
• 30 % Debt Level (How much is too much?)
• 15 % Length of Time You Have Been in Debt (How established is yours?)
• 10 % New Debt (Are you taking on more new debt?)
• 10 % Types of Debt in Use (Is it a healthy mix?)