Building your credit is a long-term process, it doesn’t happen over night. You can ruin good credit faster than you can repair it. One late payment can drop your FICO score by 60 to 100 points depending on your personal credit history. A late payment does not affect everyone exactly the same way, but it does drop your score quickly.
Know How The Credit Game Is Played.
The company that rates your credit (FICO) calculates the credit scores that lenders use, are based on five different areas of your credit. The highest score that carries the most weight, is based on your payment history, 35 percent of your total score is based on this one factor. The next area of importance is based on the amount you owe, this is 30 percent of your score. The length of your credit, or how many years you have had credit, is 15 percent of your total. New credit attributes 10 percent to the total, and the final 10 percent is based on the types of credit you have. Like revolving credit, mortgages, car payments, credit cards, etc.
If you are just starting to build your credit, the earlier you start the better. At first your score will start out low because you don’t have any history of payments. Your score will increase as long as you maintain a positive credit history.
Make your payments on time. One late payment on your history report stays there for seven years and has a negative effect on your FICO score. The negative affect will diminish over time. Don’t miss any payments, save yourself the trouble and extra costs of having bad credit.
Making your payments on time is the biggest way to raise your credit score, however keeping the amount you borrow in comparison to your credit line, is the next best way to raise your score. Maxing out your credit cards affects your score negatively. It is suggested that you keep your credit at 40 percent of what your total credit limit is. MSN Money recommends using 30 percent less of your available credit, with 10 percent as an ideal target.
If your credit cards are over the 40 percent level, then start paying them off immediately. Make extra payments every month to lower the balances as quickly as possible.
About the Author:
By: Mike Reitz
By the way, do you want to learn more about how I show my clients to save money on their vehicles? If so, download my free eBook here: How to Buy Smart so you’ll know if you are paying the right price for your vehicle.
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