Credit Score Priorities: Keep the Main Things the Main Things

Credit Score Priorities: Keep the Main Things the Main Things

Credit scores matter. There is no doubt about that. Especially if you are trying to get a credit card, purchase an automobile, or get a mortgage. However, many people do not know their credit score, what their score is made up of, and what can increase and/or decrease your credit score. Knowledge of this information is important to make sure you do the things that will help you to maintain or increase your credit score.

During several inquiries about applying for a loan, potential applicants usually ask two questions. 1. What credit score is needed to be approved for a loan? 2. If a “hard” inquiry or a “soft” inquiry will be made on their credit report if they apply for a loan? The answer to the first question usually depended on the financial institution I was working for, whether or not I did the underwriting, and the type of loan they were applying for. Usually the loan was underwritten by a different department, several factors were considered in the underwriting process, and I was not aware of the factors used to make that decision. So, I had to tell them this information in a way that would not guarantee loan approval or loan denial. They had to go through the application process. The reason for the second question was because they wanted to make sure their credit score did not decrease as a result of their loan application. A “hard” inquiry is usually made on your credit report if you directly apply for credit. This may have an impact on your credit score if you apply for several loans in a short period of time from different credit providers but the impact is usually minimal. To find out more about “hard” and “soft” inquiries, click on this link.

I think the more important question is, “What is my credit score made up of or how is my credit score determined?” Your credit score is made up of the following factors with the following percentages:

35% is your payment history – it is very important to pay your bills on time!

30% is amounts owed – it is not good if your credit card balance is high

15% is length of credit history – the longer you have had credit the better

10% is new credit – more new loans can indicate inexperience

10% is credit mix – more than one type of loan can be favorable

Paying your bills on time, not maxing out your credit cards, showing a good credit history, limiting too many new loans and/or making sure you do not close credit cards after they are paid off, and having an auto loan, a mortgage, and a credit card shows the ability to manage different types of credit. Although different financial institutions, especially banks and credit unions, use different criteria to make loan decisions, these factors are the ones used to approve or decline loan applications.

To find out more about credit scores, click on this link. Remember, credit scores matter and can mean the difference between paying thousands of dollars more each year on your auto loan, mortgage, credit card(s), and auto and home insurance. There are several factors that will determine this and my suggestion is to put more focus on those factors that can make the biggest difference to you. The choice is yours and the power is in your hands. All the best.

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