Tuesday, March 30, 2010

The Ins and Outs of your Credit Score - Part II

To many people a credit score is a magical number derived by the powers that be, a number so important as it can decide your borrowing fate. However, most people have no idea how this number is equated. Obviously paying your bills on time is key, but what else determines a good score from a bad score.

In Part I we looked at how a Credit Score is composed and what affects the score. Today we’ll look at exactly what actions will hurt a score and how you can improve your score.

Please note that Hamilton Community Credit Union may use credit scores in conjunction with many other factors to establish an approval on loans or mortgages including your Credit Bureau. We feel that knowing how credit scores are derived is important to you for now and for your future.

What actions will hurt the score?

Missing payments. Regardless of the dollar amounts, It will take 24 mo to restore your credit score after one late payment

Credit cards at capacity (i.e., maxing out credit cards)

Closing credit cards out. Many people believe they should close cards they are not using however this lowers your available credit capacity, which in turns lowers your score.

Shopping for credit excessively. If you are constantly applying for different types of credit it will lower your score.

Opening up numerous credit accounts in a short period of time.

Having more revolving loans in relation to installment loans. Revolving loans are Credit Cards or Lines of Credit as apposed to Installment loans such as a loan for a vehicle.

Borrowing from finance companies

How to improve the score?

  • Pay down on credit cards
  • Do not close credit cards because capacity will decrease
  • Continue to make payments on time as older late pays will become less significant with time
  • Slow down on opening new accounts
  • Acquire a solid credit history with years of experienc

We hope these two posts on Credit Scores have been helpful. If you have any other questions regarding Personal Credit and Credit Scores contact either branch and speak with a Member Relationship Officer today.

Monday, March 1, 2010

The Ins and Outs of Your Credit Score

To many people a credit score is a magical number derived by the powers that be, a number so important as it can decide your borrowing fate. However, most people have no idea how this number is equated. Obviously paying your bills on time is key, but what else determines a good score from a bad score.

Over the next couple posts I plan to outline exactly that. To help shed some light on the mystery of Credit Scores.

Please note that Hamilton Community Credit Union may use credit scores in conjunction with many other factors to establish an approval on loans or mortgages including your Credit Bureau. We feel that knowing how credit scores are derived is important to you for now and for your future.

How is your Credit Score Composed

Your credit score is calculated and weighted based on different factors associated with your debt repayment and available credit.
  • 35% of your score is based on payment history, if you’re on time or delinquent
  • More of that is weighted on current pay history than past performance
  • 30% is based on you credit capacity. This means how much credit do you have available to you. If you have a Credit Card with a $10,000 limit and owe only $1,000 that gives you a high credit capacity.
  • 15% is based on the amount of time you’ve had each debt or credit card
  • 10% is based on how much debt you’ve accumulated in the last 12-18 months
  • 10% is based on a mix of the types of credit you have. Installment loans are rated better than revolving credit cards
  • Finally, the number of finance company loans, the lower your score

Your score is also based on the number of inquiries you make. Your score will go down if you are constantly searching for credit. However, if for instance you are looking for a mortgage and apply at 5 different places within a couple weeks these would be grouped together and would be scored as only one inquiry.

As mentioned above your score is more heavily weighted on your most recent activity. The following is a break down of the weight of each year of your credit history.

  • 40% is based on your last 12 months
  • 30% is based on your last 13 – 24 months
  • 20% is based on your last 25 – 36 months
  • 10% is based on your last 37+ months

What doesn’t affect the score?

There are certain items that people thing should affect your score, but don’t.

  • Debt ratio – the amount you make compared to the amount you pay out for monthly expenses does not affect your score
  • The amount of income you make does not affect your score
  • The length of time you’ve resided at your current address does not affect your score
  • The length of time at your current place of employment does not affect your score

In the next post we’ll discuss what actions can hurt your score as well as what you can do to improve your score.

If you have any other questions regarding this topic please do not hesitate to comment below.

Please note that these are basic guidelines that make up your credit scores. Scores are calculated differently by different score providers. This article is for information purposes only and should not be considered financial advice. Please talk to a Member Relationship Officer at HCCU to address any of your specific questions or concerns.