Having a healthy credit score is vital for any business and just makes life easier in general
Why credit is important
Whether you’re trying to get a credit card, home loan or secure a business loan, the first step any lender is going to take is reviewing your credit bureau. In the finance world they refer to this as your personal report card. If your credit isn’t the best don’t worry, we are going to go over credit repair.
The reason for this is due to the fact that it is a very accurate way of determining how you are with money. Within your credit score there are a number of factors that make up your final score (more on this down below). Obviously, someone that is not very good with money present a greater risk to the lender. This results in getting turned down or denied for a loan.
Even if you have no interest in obtaining a business loan or purchasing a home, your credit score still impacts you in a very big way. Someday you will probably need to purchase a vehicle. Maybe you always pay cash for your vehicles so it doesn’t matter. Maybe you plan to always be a renter so you don’t need to worry about getting a home loan. Well any decent rental is going to preform a credit check.
Or what if an emergency comes up and you haven’t taken the proper precautions and you have no emergency fund set aside. My point is no matter who you are good credit is crucial in one way or another. Insurance companies and some utility companies are even starting to pull credit.
If you understand how credit works and would just like to know how to repair it scroll down or
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What determines your credit score
Now we are going to jump into what exactly determines your credit score. What makes it go up, what makes it go down and what makes it go way down. Unfortunately it is much easier to lower your score than to raise it.
Payment history
Payment history is the biggest factor in determining your credit score. This will make up 35% of your overall score, that is a big number!
This goes back to when I was saying credit is a good reflection of how you are with money. How this works is say you have a credit card, auto loan and student loan. Every month these balances and your payments will update on your bureau. As long as you pay on time and miss no payments these loans will be in good standing. Keep a 100% payment history and this will help to raise your score.
Say for whatever reason one month something comes up and you miss a payment. This will put a ding on your credit. Late payments on your credit bureau are usually broken down into 30, 60 and 90+ days. Obviously the longer you go without paying, the bigger the impact is to your score.
Score killer alert!
Lastly, the absolute score killer! Say you purchased a car and everything was going great until one day you are driving down the road and smoke starts pouring out from under the hood. You call a tow truck, and have it towed to a shop in town. After looking at it they tell you that the engine blew and its going to be $5,000 to fix it. Well you don’t have $5,000 so there it sits. Yet every month you have a $300 payment on it still. You say I cant even drive it so i’m not paying on it.
This results in a collection! The bank doesn’t care that it doesn’t run. They let you barrow the money to purchase it and they want it back, whether it runs or not. After attempting to receive a payment from you for months eventually they say enough is enough and sell it to a collection agency. Now you have a collection agency calling you every other day and a big ugly collection stamp right on the front page of your bureau. Absolute score killer!
SCORE KILLER
– Late payments
– Collections
SCORE MOVER
– On time or early payments
Credit utilization
Credit utilization or amounts owed comes in second for biggest impact. This makes up 30% of your score, another big percentage.
What exactly does credit utilization mean? This refers to the amount of credit you have spent compared to the amount you have been given by the lender. Credit utilization is mostly tied to revolving credit.
Take a credit card for example, since that is a type of revolving credit. On this credit card lets say you have a $10,000 limit, now don’t get excited! This doesn’t mean go out and spend $10,000 and pay it off at $80 a month and you’re good to go. That is the last thing you want to do, score killer alert!
If you have a $10,000 credit limit the max balance you want to carry is $2,900 or 29%. As you can see that is far from $10,000. If you want to take the fast lane to an Excellent score keep your percentage below 10%. If you have multiple cards the same math applies to the overall total. The higher the balance and the longer you carry the balance presents a greater risk. In turn this hurts your score.
Tip: If something comes up and you need to use over 29% pay the balance off in full before statement due date.
SCORE KILLERS
– Maxing out credit limit
SCORE MOVERS
– Staying below 10% utilization
– Paying balance off in full
Credit History
Next inline is credit history. Credit history makes up 15% of your score.
Credit history is determined by the length of your accounts. If you received your very first line of credit 10 years ago this would give you 10 years of credit history. Now say, 5 years after you received that first line of credit you applied for another. This will now work out into an average, giving you only 7.5 years of credit history.
Tip: Never close lines of credit. Mainly because this will effect your credit utilization.
Credit Mix
Credit mix makes up 10% of your score. This is a mix of your revolving credit and installment loans. There are a couple others that could be in there but these are the main two.
Revolving credit being credit cards for example, and installment loans being auto loans, mortgages, etc. Credit usage doesn’t play a huge role in determining you credit score but it does have some say.
New credit
New credit is tied with Credit mix at 10%. This is referred to Inquires on your credit bureau. Every time you apply for a loan or credit card this will show up as a hard inquiry. This usually takes about 2 years to fall off. Sometimes there are exceptions made like for rate shopping. For example while applying for a home loan you are given a set amount of days (usually 14 sometimes as many as 45 days) to shop around for the best rate. If you stay between this time frame you will only acquire one inquiry.
How to repair your credit
This is where it gets fun!
Everyone was young and dumb at one time or another, Including myself. Even if you made it past the young and dumb stage without hurting your credit something else might come up. Loose a job, divorce, health emergency or any emergency for that matter. Point is there are many things that can happen that will have a negative impact on your credit score.
Good news, even if one or all of those happen there are ways to repair your credit so things can start looking up.
Lexington Law
From personal experience the most stress free way by far is working with a company called Lexington law. This company specializes in credit repair, they are definitely number one in their industry.
I always recommend paying your collections if possible or working out a payment plan. However this can be a double edged sword. On your credit bureau it will show the collection still but say paid in full. So the lender can see that at one point you had a collection. They can also see you were responsible enough to pay it off.
Very important, you might have had someone tell you not to worry about a collection from years ago because it will eventually fall off. This still looks just as bad as a collection and does not help the credit repair process. This is called a charge off. After a period of time this might not have as big of an impact on your physical score but lenders still see this. You better believe if you go to get a loan one day and you have four charge offs from years ago this will effect you in one way or another.
There is also the possibility that a collection might appear on your credit bureau for something that was out of your control.
Out of your control?
Years ago I lived in a nice apartment complex. Unfortunately I was only there for five months before an emergency came up. I lived in a different state from the rest of my family and had to move back to my home state. After suggesting multiple options to work with the complex I was told my only option was rent to re rent. Meaning even though I didn’t live there I needed to pay rent until it was re rented.
Luckily I knew someone that was part of the staff at the complex. After paying rent for two months while not living there I checked in with the person I knew. I was told that the unit wasn’t being shown because it was considered rented, I immediately stopped payment. This went on for six months after I left. Right in time for my lease to be up, coincidence? All said an done I owed over $7,000. Since that the unit was not even being shown I knew this was not right, and so did Lexington law. Within one month the balance was completely wiped away! Removing these derogatory marks are an important step in credit repair.
Give them a try you wont be disappointed. If for some reason it is not for you simply cancel. This is a month to month deal, no contracts.
Click here for Lexington law
All in all credit is very important! Whether you want to purchase a house, car, get a business loan or just have that piece of mind. It is a good idea to practice good credit behavior. Not to mention if you have ever went from bad credit to good credit you know how much easier it makes everything. The less obstacles the better!
Comment down below how credit was a game changer for you!
