Credit Scores
April 11, 2008
What goes into a credit score and how do those outstanding credit card debts affect it? There are several different sets of data that are computed to find your credit score. First, historical data on how you have effectively (or ineffectively) paid your bills. Do you pay your bills on time? If not, is there a trend of late or missed payments? Have any payments been sent to collections? All these factor into this first category. Second, what is the ratio of amount of credit you are using compared to total amount of credit available. For example, if I own one credit card and I currently owe $500 while my total credit available is $5000, than my credit used is 10%. This is a pretty good ratio when it comes to computing credit scores. Another hovering around the 25%-33% or below is fairly healthy. The next factor is how long you’ve had credit. The longer you’ve displayed good judgment and credit the better. Next is how good of a mix of credit do you have? Do you own 10 credit cards as your sole means of credit or do you have a well balanced mix of credit cards and car/home loans? Last is how many credit applications are you filling out? Avoid applying for lines of credit in excessive patterns. This will lower your overall credit score.
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