Business Money Basics: Understanding & Improving Your Credit Score
With today’s economy, your PERSONAL credit is becoming more and more important. It takes a long time and lots of effort to build a business credit history and the basis of it starts with YOU!
So lets break down the basics of how your personal credit score is composed and also look at how things can effect that score negatively or positively.
Components of a Credit Score
• 35% = based on payment history (i.e. on-time pays or delinquencies and more weight is put on current pay history)
• 30% = capacity
• 15% = length of credit
• 10% = accumulation of debt in the last 12-1 8 months (# of inquiries & opening dates)
• 10% = credit mix (installment raises scores, revolving lowers score and the number of finance companies lower the score as well)
Approximate Credit Weight Each Year
• 40% = current to 12 months – 30% = 1 3-24 months
• 20% = 25-36 months
• 10% = 37 + months
What actions hurt a score?
• Missing payments (regardless of the dollar amount, it will take 24 months to restore credit with one Tate payment)
• Credit cards at capacity (i.e. maxing out credit cards)
• Closing credit cards out (this lowers available capacity)
• Shopping for credit excessively (auto & mortgage shopping do not have a negative effect)
• Opening up numerous trades in a short period of time
• Having more revolving loans in relation to installment loans
• Borrowing from finance companies
What will improve a score?
• Paying down on credit cards « Not closing credit cards
• Continue to make payments on time (older late pays will become less significant with time)
• Slow down on opening new accounts
• Acquire a solid credit history with years of experience » Moving revolving debt to installment debt
What doesn’t affect the score?
• Debt ratio
• Income
• Length of residence
• Length of employment
Scoring "Cheat Sheet"
• Almost impossible to score 700+ points with any current delinquency
• Almost impossible to score 700+ points without good capacity
• Will always score 700+ with good capacity and no public records, current or past delinquencies
• Will always score 500 point range or lower with no capacity and current delinquencies
• Will score in 600 range if doing well with how you pay and okay in capacity
• Will score in 600 range if doing well with capacity and okay with how you pay
Impact of Bankruptcy
If you have a 730 Score at the Time of Bankruptcy
You will see a net Loss of 200 Points = 530
If you have a 560 Score at the Time of Bankruptcy
You will see a net Loss of 30 Points = 530
OK did you get all that? Miss something? Just didn’t understand something? Well down load this FREE book to help you get a better understanding of your credit report and scores…
(Click the picture above for the FREE Book)
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