Find Out What Makes Up the Infamous Credit Score

By Matt Schwartz

The current interest rate environment has created a once in a lifetime opportunity for families to secure financing at unprecedented rates.  What’s the catch? 

Lenders have tightened their credit requirements creating a situation where what was once considered a good credit score will no longer cut it.  Have you checked your credit score lately?  If the answer is no you’re not alone.  I’m not advocating expensive credit monitoring services, but what I am suggesting is an understanding of the variables that effect your credit score.  Once you have a handle on the basics it’s actually quite simple to build and maintain a good credit score.  

So what makes up your credit score? 

There are 2 major variables that effect your credit.  The most important aspect of your credit is your payment history, whether or not you pay your bills on time.  A single late payment on a credit card can bring down your score as much as 30 points.  Everyone goes through a rough patch here and there, but most of the time missed payments are due to carelessness. 

Believe it or not missing that $10 minimum payment on your credit card could cost you tens of thousands of dollars.  Set aside 30 minutes a month to review your credit accounts to ensure you’re on top of your payments, it will pay off in the long run.

The next biggest mistake is over use of your revolving lines of credit.  Revolving credit is any account where you are granted a credit limit and have the ability to spend or use that credit at your discretion, such as a credit card.  Revolving credit has more of an impact on your credit than installment loans such as a car loan because it shows your ability to budget and use credit properly.  If you are using a large portion of your revolving credit it’s an indication of financial stress. 

The credit scoring model picks up on this and your score is dropped as a signal to potential lenders that you may be experiencing financial difficulties.  Ideally you want to keep your balances on your revolving accounts at or below 30% of your available limit, the lower the better.

People make mistakes, people go through rough periods, unfortunately the credit bureaus don’t care.  However there are laws in place that creditors must adhere to in order to report negative information on your credit report.  Namely the Fair Credit Reporting Act (FCRA) gives you the right to challenge negative information on your credit report. 

When used properly the FCRA can be a powerful tool to quickly remove negative items from your credit report.  The common misconception is that a derogatory item needs to be invalid in order to be disputed, this is simply not true.  We assist clients on a daily basis in the removal of items that are in fact theirs, but may be reported incorrectly based upon loopholes in the credit reporting laws.  If you’re looking to take advantage of today’s rates, but find yourself in a position where your credit is holding you back we’re here to help.

About the Author:  Matt Schwartz is a credit counselor.  To get Credit Counseling, visit his site at RCS Credit Solutions