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Understanding Credit Score!

Updated: Dec 28, 2019

What is a Credit Score?

-A measurement of how risky you are to a lender. This is based on multiple factors where you get your "FICO" score. Created by two guys named, Fair and Issac and they created the (FICO) Fair Issac Company. Loan officers, Landlords, and banks all use a few models of FICO score to make their decision on whether to give you money or not.


FICO CREDIT SCORE

----------------------------Factors that make up your FICO Score----------------------------------

1. 30% amounts you owe. This is total amounts and type of accounts, For Example, 5 credit cards all with high balances affects your credit a lot more than a mortgage of with the amount owed as the 5 credit cards. Type of credit affects this.

2. 35% Payment History. Pay your bills on time, (I will have another blog that goes in how to read your payment history on a credit report.)

3. 15% Credit line History. Every account you open records the history of payments and your track record of how good you are at paying off debt, and avoiding fees. if you close that account you lose that history. if making a big purchase do not close accounts it can affect you negatively.

4. 10% New Credit - are you taking out a whole bunch of store cards to pay off debt or to Christmas shop, don't?

5. 10% credit mix. Differentiate credit. More people pay car loans because they need a car so its safer, credit cards fluctuate. mortgages, and personal loans all affect differently and show your financial personality and that is why credit mix matters.


-------------------------------------------SCORE RANGE---------------------------------------------

The most common is FICO Score model 8 - used across most practices ranging from 300-850 300 being the worst, 850 being the best.

To get any loan/mortgage you need a minimum 580 credit score and that still gives you a 50/50 shot at getting a loan.

-They say having no credit is better then bad credit, this is because they can view bill payments and stuff to see if you are risky or not.


---------------------------------------------REPORTING---------------------------------------------

Most companies don't report the good, they only report the bad.

You as an individual can report your bills to the credit reporting companies so they count towards your credit score for the better.

You can report your Utilities (not cable/phone), Rent to a landlord help your credit. You can ask the landlord to report on your behalf, but they don't have to.

All lenders, will report if you miss payments.



------------------------------------------------INQUIRY'S----------------------------------------------


-Soft Check - used for quick check and pulls a score from one of main credit companies. it doesn't affect for credit negatively,

-Promotional check - Is the check they do when they send you pre-approved credit offers in mail. once you send the letter back they will do a hard check and decide if you are approved/ or not for the credit line. doesn't affect you negatively and you can here --> opt-out.

-Personal if you pull your credit report on your own it doesn't affect the score.

- Hard Check, this is when you apply for any loan it will affect your score negatively. usually not to many points unless you do many hard checks.

With auto loans and Mortgages, FICO understands that you are shopping around so you can do as many check as you want in 45 days and it will only count as 1 check.


----------------------------------------------Fixing Credit----------------------------------------------


You can view your credit report 3 times a year once for each reporting company for free. it usually cost an extra $8 to view the credit score.


The 3 companies are

1. TransUnion --> home --> disputes

2. Equifax --> home --> disputes

3. Experian --> home --> disputes


In the report you want to check for errors and you can file disputes.


Things to check.

1. Addresses

2. If you paid anything off.

3. Everything on your report is accurate to you, all the loans, credit cards. for example my brother and father are both James Smith (common names) so my fathers debts or failure to pay stuff will show up on my brothers Credit reports and affect his credit score even though it is not his fault. This happens to many people and you want to stay ahead of it.

4. The date you opened any credit accounts or took out any loans

5. The current balance on each account.

6. Your payment history.

7. The credit limits and total loan amounts. Any bankruptcies or tax liens.

8. Your identifying information (name, address, Social Security number)


Never dispute more than 5 things per report any given month, if there is more then 5 wait till following month to dispute. The reason is because you get flagged as a spammer and it will take longer to solve the issue.


Start paying stuff on time.

Cook at home is usually cheaper then eating fast food.

Below is an awesome method to help improve your finances.


---------------------------------------The Debt Snowball Method------------------------------------

Lets say you have 5 bills. total $1,500 a month.

1 bill cost you $100/month. you finally pay that bill off. most people will think "oh now I have an extra $100 a month to spend on what ever I want", WRONG that $100 is now going onto the next bill, so for that second bill lets say you were paying $50 a month, now you are paying $150 a month till its paid off, then you add that $150 to the next bill till its paid off and you keep doing this till all debts are paid off. In the long run you will save a lot more money not paying interest. See Image below as an example.


Jreap Debt Snowball Method

Questions? I am here to help you get ready for success.


Disclaimer, not a credit repair expert or financial adviser but I can hook you up with a few that are awesome.





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