Credit 101
Welcome to Credit 101! This should be considered your first step down the right path to Credit Success. At the end of this article, you will be able to answer the following questions:
- What are the basics of credit scores?
- What makes up my credit profile?
Credit Scores were introduced as the financial health standard by the Fair, Isaac and Company (FICO) in 1989. This standard was and is for companies who need an unbiased way to view a potential client’s financial health. Long gone are the days of getting a loan because you looked the bank manager in the eyes with a firm handshake.
This new standard brought with it new rules… rules that are not public knowledge. You may be asking yourself, “Why are we not allowed to know the rules for which are used against us?” The answer is frustratingly simple, instead of having a bulletproof standard, they shroud it in mystery to prevent people from taking advantage of it. A general rule of thumb for this mystery is pieces of credit that are closest to today carry the most weight.
Put yourself in the position of a loan officer, are you about to loan someone money based on who they were 10 years ago or who they are now? Granted, who they were 10 years ago is still useful information but by no means more important than who they are now. This is great news! There is hope for those of you who may have made some poor financial decisions in the past and are now walking down your path to Credit Success.
Now that the origins of credit scores have been discussed, let’s move onto what makes up your credit scores for FICO:
- Payment History: 35%
- Amounts Owed: 30%
- Length of Credit History: 15%
- Credit Mix: 10%
- New Credit: 10%
Don’t be discouraged from seeing all of those percentages; view them as reference for how each is weighted from one another. Payment History is by far the most important (we will talk about getting late payments deleted later on). How much credit can you spend right now versus how much you have spent is a metric to judge risk (we will discuss the best ratio later on). The other pieces are relatively self-explanatory. Length of Credit History is just that, how long you’ve had certain pieces of credit. Credit Mix is the… mix of credit you have, such as credit cards, installment loans, and other types of credit. New Credit is there to weigh how recently you’ve acquired a new piece of credit.
Given we now know what is roughly used to judge us as potential clients for these financial institutions, let’s discuss what a credit profile is. For example, in football, how many touchdowns you have is just as important as how many the other team has scored. In credit terms, there are pieces of credit that give and take; you want more give than take so your scores will rise. Yes, you may have some late payments but your Amounts Owed is sitting at a great ratio, thus more is given than taken. This is a simplification but helps you understand that a credit profile is the result of what gives and what takes. A positive credit profile, like in the previous example, is one that gives more than takes.
We know why credit scores were introduced, how they relate to us as potential clients, and what roughly defines them. It’s time to get personal! What is your credit profile? Are your pieces of credit giving more than taking? Do you have pieces that give?
You have to have a reason to have a score. Good credit adds points and bad credit takes points. Could it be this simple? Yes!!!
It takes two pieces of credit to populate a mortgage score. It takes three pieces of three bureau mortgage score reporting pieces of credit to qualify for FHA, VA or USDA Rural Housing loans without alternative tradelines. Make it easier and cheaper on yourself. Don’t make the underwrite burn unnecessary mental calories.
It takes four pieces of three bureau mortgage score reporting pieces of credit to qualify for most conventional and small business loans.
Getting four pieces of three bureau mortgage score reporting while paying less than $5 dollars per month in interest PER COUPLE. You will be provided the links to get all the score building credit you need to push your mortgage scores to +800 as quickly as possible.