Video 18 – Credit Score Components

Transcription of Credit Score Components Video 18

So now let’s look at what comprises a credit score. What we are doing here is painting a picture. We want to paint a picture of a profitable client for the creditors. Somebody who borrows money, always pays it on time and doesn’t take undo risks. We want to look like they’re paying all kinds of interest, they’re really profitable, they’re making tons of money off of us and they’re really secure because they never miss a click. They look at how much you have available, specifically revolving credit is very important with that, that’s the amount of credit that you have. They look at how long have you had it, which is history, how much, how long. We want to show them we can borrow $100,000 at the drop of a hat and have never over extended or missed a payment. That’s who they’re looking for. They look for a mix of credit, which is a variety of different credit types. Which would be installment credit (which is a close ended loan, something like a car that you pay off or an RV), revolving credit and mortgage credit. Ideally, you have all three. One of the big factors now is what they call utilization of debt. This is what John just mentioned a minute ago. How much of your revolving credit line or lines are you using? Percentages, are really important. Just because they give you a $10,000 card doesn’t mean they want you to use $10,000 worth of credit. Which is confusing because why would they give that if they didn’t want you to use it? With the credit scoring system, ideally, you’re under 30%. Up to 40% is not a huge deal, it’s not going to be a big impact. If you step over 40% of your credit limit, either on an individual credit line or collectively on all of them, they’re going to whack you with the big stick. That’s a big impact; that’s 30% of your credit score. I’ve seen 50-60 points overnight just by changing those balances around. It’s the biggest single factor.

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