Credit Scores - What Drives the Score Down

We read lots of important information regarding our credit score and what makes them tick; so to speak. Well, our credit habits make them tick up or down and sometimes very low if we aren't careful. What Drives the Score is made up of many aspects and I will give you a few of them and hopefully this will be of help to anyone who does not know how to watch their credit habits and account.

Importance of Accounts:

It is very important to know that the score is based upon a mixture of the types of accounts you have; for instance:

• revolving charge accounts
• installment accounts
• open accounts *paid in a specific time other than monthly
• mortgage accounts
• finance company account

Revolving Accounts: Your revolving accounts are reviewed by your high balance (the approved maximum balance you may charge) versus your current balance. If you are constantly charging on these accounts and never paying the balance off; then your score is affected.

Installment Accounts: These accounts are of course your car loan, a personal bank loan, any loan which has a set payment and term; sometimes 12 to 36 months +. These accounts are paid principal and interest each month sufficient to pay off the account within the amortized term of the loan. Too many of these accounts can be reflected as excessive amount of credit and could hurt your score. Please reflect that I said; could hurt your score. Anytime there is excessive obligations, pages and pages (which I have seen a few times); it does not count for being a good credit risk when you are already loaded down with debt. Regardless of the income.

Open Accounts: Open Accounts are those that may be paid; quarterly, semi-annually or annual. Sometimes the interest is paid monthly and the principal balance is paid at the specified time. All open accounts would not suggest a perfect score either.

Mortgage Account: The perfect mortgage account which some have concluded is the main factor in credit scoring. It can't be as there are many people who have paid their mortgage off years ago and still have a perfect credit score of 800. The mortgage account is one of the most important account, especially in mortgage lending due to the fact that a mortgage lender is going to review how you have paid your previous mortgage and/or rental for the past 24 months. If there are late payments of 30,60, or 90 without a proved extenuating circumstance; most lenders will not approve another mortgage and your credit score WILL be affected by the late mortgage payments.

Finance Company:  A lot of people get loans with finance companies with lower credit scores.  They will charge higher interest rates but most of the time that will get it done.  Too many of these accounts will bring the score down also.

• If you have too many revolving charges which are all as much as the high balance.
• If you have late payments on any account within the past 24 to 36 months.
• If you have numerous collections accounts
• If you have judgement account
• If you have tax liens
• Unpaid child support or alimony payments
• If you have a high volume of unpaid or late payments for student loans; this will give make your score go down. These are government loans most of the time.
• If you are the co-signer on a loan; if the person who is responsible for the loan does not pay the payment....you are obligated to pay the payment when it is due; on time or it will be reflected on your credit report as late also.
• If you have too much credit; it is going to be reflected in your score to some extent even if paid on time
• If you have too much credit; it is really going to affect your score if you have a 30 or 60 day late payments scattered here and there within the past 23-36 months
• If you have all revolving charge account; this will also be reflected in your score to some degree. You will probably not see the perfect score; it may be good if you have no other credit but have made the payment without being late. A mixture of credit lines to include those mentioned above always make for a higher score. Why? To some degree it is because revolving charges have a minimum payment and most individuals do not pay off the revolving charges as they should. They make the minimum and it takes 20 years to pay off a $5000 balance. No kidding...as we know now the card companies have to disclose how long it will take you to pay off the card with only the minimum payment.
• When you have too many finance company loans
• Higher balances on all account
• Too many credit inquiries on your report within the past 90 days

Is there a perfect score?  Well, there are good scores and it doesn't take rocket science to follow some guidelines to keep your scores good.

Good credit score range from 660 - 700+

Excellent credit score range from 700 - 800+

Fair credit score range from 620 - 650

The way to get your score to where you want it to be first and foremost is to always pay your payment when they are due.  Never get 30 days delinquent on any account.  Watch your credit lines.  Pay off you balances on your revolving charges monthly (if you can) but always pay more than the minimum balance. Always! 

We all know that the unforeseen does happens to most of us and there may be circumstance beyond our control.  But, these times will be reflected on the credit report as an isolated event.  For instance, if you had a six month period where you lost your job and became late a few times; the credit report account will reflect those dates to be in line with when you were without a job.  When these kinds of things happen; it is always good to keep documentation to prove any issue which was out of your control.  Don't think that it might not come back to haunt you; it will. 

When a lender is looking at your credit, they are reviewing how you have paid your obligations in the past.  As stated; normally within the past 24 to 36 months.  If you have problems prior to this time; these may be explained.  If your assets and income are sufficient currently; then most lenders will look beyond previous circumstance if you are currently employed, are paying your obligations timely and project to them a good credit risk.