According to myFICO.com, "Credit scores give lenders a fast, objective measurement of your credit risk." Credit is composed of five areas: payment history, amounts owed, length of credit history, new credit and types of credit. Managing all aspects of credit is important to ensure you can purchase a vehicle or home when that time arrives.
Payment History
Missing payments or making payments 30, 60 or 90 days late will lower a credit score. Payments made 60 to 90 days late can remain on a credit report for up to seven years. The more often a payment is late, the more damage is caused.
Amounts Owed
Making more than the minimum payment will help increase your credit rating. Maintaining a low balance on credit cards and paying loans down is beneficial.
Length of Credit History
Credit history is not factored solely by when an account was opened. Also considered is when credit was last utilized and the total debt to available credit. Keeping a credit card for 10 years, using it every six months and paying off that balance looks better than a stagnant card.
New Credit
Applying for many types of credit in a short period damages credit. Shopping around for the best rates on a mortgage or vehicle loan within a 30- to 45-day time frame is considered just one inquiry. The more inquiries made to harness available credit, the more damage caused.
Types of Credit
When lenders examine a credit report, variety is important. Maintaining one or two credit cards, a car loan and an educational loan show wise credit choices.
Future Plans
Learning about credit and how credit affects your ability to make large purchases later is wise. Knowing how credit scores are calculated and what lenders look for will help in making sound credit decisions. When in a position to purchase a house, finding the perfect home will be the only concern.
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