How To Tips: Building Your Credit

In order to help build your credit you have to first understand what factors influence their credit scores. Let’s start with how your credit—or FICO—score is calculated. Your credit score is affected by 5 factors: Payment History: Your payment history accounts for 35% of your credit score. The goal is to establish a record of full, on-time payments. Recent history is given more weight. Amounts Owed: Your debts account for 30% of your credit score. Credit bureaus look at both your total debt and your debt-to-credit-limit ratio. Not all debts are bad, but loads of credit card debt is definitely frowned upon. Length of Credit History: How much history you’ve already established accounts for 15% of your credit score. This can make it difficult for folks just starting out. New Credit: Recent credit acquisitions account for 10% of your credit score. New accounts are handled with suspicion. Types of credit used: The types of credit utilized account for 10% of your credit score. It’s helpful to diversify. Lenders use your credit score to determine your financial trustworthiness. They’re more inclined to give money to people who will successfully pay it back. To prove your trustworthiness, you must demonstrate through example. Here’s a list of simple guidelines to follow as you work your way up the ranks. One, make payments ON TIME, ALWAYS. This is the #1 rule of building credit. This applies to credit cards, loans, mortgages, everything. Keep credit card debt LOW. Use your card regularly, but don’t spend money you don’t have. Stay well under your credit limit. You’ll be scored favorably if you keep below 30% of your total credit limit. To raise your limit, consider a credit card that has no hidden fees. Don’t take out cash advances. Keep accounts open for as long as possible, especially if doing so is cost-free. This raises your average account age and your total credit limit. Don’t open too many new accounts all at once. This lowers your average account age. Checking your credit report regularly will help to keep you up to date on where you stand with your credit score. Paying through installment loans will raise your score. Stay away from prepaid debit cards because they do not help to improve your credit. If you have everything lined up your next step is finding a credit card. Stay on top of your credit, and remember to NEVER spend more than you can afford…and ALWAYS pay more than the minimum monthly payment to help keep you from getting behind in the future. For more information or helpful credit tips contact Steve Head at steve@txpremiermortgage.com, or call at 281-627-4222.