The debt you currently owe impacts your total credit score by about 30%. Only “Payment History” is a bigger factor affecting about 35% of your credit score. Meaning, even if you make your payments on time every month without fail, an overloaded credit profile can hold your credit down, keeping you from the savings and advantages that premium credit holders are given.
To keep this portion of your score in check, consider the following areas of debt that may be bogging your credit score down:
-Amounts owed on all accounts, including the various types of accounts. Meaning that on top of the overall balances you have, the score also considers the amounts that you owe on certain types of accounts, such as revolving or credit card debt and installment loans.
-How many accounts currently have balances. To your credit, the more accounts with balances the higher the risk of over-extension.
-The proportion of balances in relation to the credit limits on revolving credit card type accounts. Again, showing a higher risk of over-extension, indicating someone who could have trouble making payments in the future.
-Balances on installment type accounts such as auto or boat loans are of course considered as well.
The bottom line is that being able to pay down you’re your balances on any debt is a pretty good sign that you are capable of managing your debt responsibly, which, as we covered earlier, is one of the larger indicators of good credit risk.
If you’re currently unable to pay down your debt significantly, consider the savings and credit benefits of a debt consolidation type loan. Talk to your broker, or visit us at MUBad Credit with any questions.
National credit bureaus collect information from creditors and provide reports to lenders. These reports include a summary of all of your credit accounts. Based on the information collected, each bureau, using an algorithm created by various vendors, also calculates a credit score for the borrower.
Factors that can impact a credit score include:
Poor Payment History
Approaching Your Credit Limit
Short Credit History
Too Many Credit Applications
Too Few Credit Accounts
Too Many Credit Accounts
Past credit problems, such as late payments, can stay on your credit report for up to 7 years from the date the original payment should have been made. Bankruptcies can be reported for up to 10 years. Lenders do tend to give more weight to the most recent payment information. And no matter what your credit is like now, you can take steps to improve your credit for the future.
Credit debt can be referred to as revolving debt on your credit report. Although overextending your credit line negatively impacts you, make sure you still use the card so activity is reported to the Credit Bureaus and maintains your accounts as active tradelines.
If you are able to get a credit line increase for your accounts this can help you raise your credit score. By keeping the account balances around 50% of the account limit you appear less risky to the credit reporting agencies. By applying this simple tactic your score should increase, even with your current debt load.
Credit debt can have a positive affect and negative affect on your score. The trick is to find the right balance of accounts and balance ratios to increase your score.
When you are making payments on your revolving credit, also known as credit card debt, make a payment each month that is more than the minimum payment. Even if money is tight pay just a small amount over your minimum payment because this is good for credit scoring. For example if you had a payment that was $51/month, pay $60 instead of the $51 minimum payment required. By doing this on all of your bills you will pay them off quicker, gain points in your credit scores faster and be in control of your finances much sooner.
Avoid flipping credit card balances from one creditor to another prior to applying for a mortgage loan. Many times, the debt will appear with both the current creditor and former creditor. This will give the appearance of more debt than what is actually owed. Review your credit with your mortgage professional.