How is my Credit Rated? Part 2
July 5, 2009 by Matt Freeman
Filed under Buying a Home, Networking, Strategic Partners
Michelle Luker is back in the second part of a five part series regarding “how your credit is rated.” In part 1, Michelle explored how delinquency makes up 35% of your score. Today Michelle touches upon Debt Ratio which makes up the next 30% of your score.
30% of the credit score is derived from your revolving balances carried on accounts as they pertain to your debt utilization ratio.
Revolving credit cards make up a very significant portion of what ultimately determines your credit score. Your total revolving credit utilization ratio is calculated as follows: Divide your Total Open Revolving Credit Card Debt into your Total Open Revolving Credit Card Limits gives you your Credit Card Utilization Ratio.
Example: $15,000 of open credit balances divided into $75,000 of available credit card limits = 20% Credit Card Utilization Ratio (debt ratio for short).
The closer to zero you’re Credit Card Utilization Ratio is, the better your credit score.
Having a 0% debt ratio is ideal, so you want to keep your credit card balances as low as possible to maximize your credit score. If you are able to do so, you should pay off or pay down your credit balances to enhance our score.
Another step you can take to improve your credit scores is to lower your debt ratio by raising your current credit limits. Caution: You need to approach this matter with care. Call and ask each credit card company if they will crease your card limit based on a review of your payment history with them only. INSIST that you do not want them to pull your credit report and thereby create an inquiry that will damage your score. Some creditors will do this, some will not. I do not suggest letting them pull your credit if you plan to make a credit purchase in the next six (6) months since the inquiry will decrease your credit score.
Now you know that the most important factor in determining your credit score is based on the handling of your debt obligations
Whether you pay your creditor on-time is 35% of the score.
You also know that the second most important factor in determining your credit score is determined by the amount of debt you carry as it pertains to your revolving debt ratio.
Revolving account debt ratio is 30% of the score.
Contact Michelle Directly to see what steps you may take in bringing your score up to the highest levels.
Office: 916-652-9637
Cell: 916-316-0247
Fax: 916-644-6626
4804 Granite Drive, Suite F-3261
Rocklin, CA 95677
How is my Credit Rated Part 1?
June 29, 2009 by Matt Freeman
Filed under Buying a Home, Strategic Partners
Michelle Luker is back again at California Home Strategies to continue a series on understanding how our credit score is derived. This is Part one in a five part series that we will be rolling out. If you have any questions regarding your credit contact myself or Michelle Directly.
At Capital Credit Source, we feel that educating people on credit scoring is extremely important to their financial well-being. I wanted to take this opportunity to explain the credit scoring system to you since I feel credit scores are much more important than most people realize. On average, even a 10 point increase in your credit score will save you in excess of $100,000 over the life of a $250,000 30-year fixed loan.
Although seemingly complex and often confusing, your credit score is essentially based on five key factors, the first and most important being payment history.
35% of the score is based on how you handle your debt obligations
- Pay all bills on time and try to avoid getting a tax lien or a judgment entered against you because those also affect your payment history in a negative way.
- Please note that paying a past due balance on a collection or charged-off account does NOT increase your credit score and may even have the opposite effect more times than not. I do no suggest paying these types of accounts when you are planning to apply for a home loan in the next six (6) months. Please let me clarify that I am not suggesting that you not pay these accounts, but that you consider waiting until after the loan closes to pay them since it can reduce your score and hurt your chances of getting loan approval. However, since not paying them can lead to a lawsuit being filed or the debt being sold to several collection agencies in the future – both of which will damage your credit even more in the long run – one excellent solution would be to negotiate to pay or settle these account either concurrent with the loan closing or shortly after. An alternative would be to settle these types of accounts for deletion with payment if you are able to get the creditor to agree to do so.
Michelle Luker
Office: 916-652-9637
Cell: 916-316-0247
Fax: 916-644-6626
Capital Credit Source, Inc.
4804 Granite Drive, Suite F-3261
Rocklin, CA 95677
