How To Have Great Credit

Posted on: February 22nd, 2011 by

Financial Planning - Rockville, MDWhat do you need to do to get your credit score in the highest range possible?  Before you make any changes, you need to know the most important information used from your credit report in determining your score.   Here are the two things that account for two-thirds of your credit score:

Your payment history: Having a long history of making payments on time on all types of credit accounts is one of the most important items lenders consider before approving you for a loan.

Owed versus available credit: This compares the amount you owe versus the total amount of credit available.  Your credit score can be lower when you use more than 50 percent of your available credit for each account.  The simple reason – when you are close to maxing out on all of your credit limits, lenders see you as a higher risk and more likely to make late payments in the near future.

There are, however, three other factors that account for about a third of your credit score:

Length of credit history: In general, a credit report containing a list of accounts opened for at least 10 years or more will help your credit score.  The score considers your oldest active account and the average age of all accounts.

New credit: Opening several new credit accounts in a short period of time can lower your credit score.  Also, multiple credit report inquiries may be seen as risky credit behavior on the near horizon, and can therefore lower your credit score.

Type of credit you use: Your mix of credit cards, retail accounts, finance company loans, and mortgage loans is considered.

Your credit score ignores your age, salary, and occupation.  It also does not take into account financial gifts, support you receive, or your financial assets.  For this reason, credit scores are less important for borrowers who seek loans that take these factors into account.

About 13 percent of people have credit scores of 800 or higher.  If you look at their credit profile, they have:

• four to six credit card accounts
• no late payments in the past seven years
• at least one installment loan – a mortgage or a car loan (with excellent payment history)
• an average of 10 years credit history per account and a few accounts with 20 years of good history
• a low number of credit inquiries (fewer than three in the past six months)
• no bankruptcies, foreclosures, charge-offs or collections
• debt levels at no more than 35 percent of their overall credit limits per account



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