Rebuilding your credit score.

A wise person once told me "The most important thing in your life is your health, but your credit score isn't too far behind.". I wholeheartedly agree. 


Your credit score doesn't just affect if you get a loan or not (and the rate you pay) it affects your insurance rates, and even job opportunities. Yet few people understand just what affects these scores and how to raise it. Let give you a few insights that might help you.


First, your credit scores are not just a reflection on your past payment history, although that is a big part. Your credit score is a predictor on the likelihood that you will default (go 90 days or more past due) on a credit obligation in the future. 


There are many factors that go into this prediction. As stated before, you past credit history may be the most important factor but it's not the only one. When it comes to negative items (late payments, defaults, judgments, etc.) the keys are recency, frequency and severity. 


One 30 day late three years ago will have almost no effect on a credit score (not recent). Where a 30 day late a month ago (recent) will have a bigger effect. One late payment (not frequent) will have less of an effect than several late payments in a row (frequent). 60 and 90 day late payment will hurt you score more than a 30 day late.


High credit card balances will bring down your score almost as quickly as a late payment. I have seen completely paid as agreed credit reports that have low credit scores due to max'd out credit cards. The credit scoring system reads this as someone that is spending more than they are taking in. While they may be paid as agreed now, the system predicts that they will have issues in the future.


The last item you want to watch is credit inquiries. For most people, 2 or 3 credit inquires a year are not going to be an issue. Beyond that you may start losing some points. If you have high credit card balances be very careful about who you allow to run your credit. The scores system reads that as a desperate borrower trying to find even more credit to keep thing going.


Go to my Important Links page to find out how to run your credit without getting hit with an inquiry. You can also find a link to the The Fair Isaac Corporation, the supplier of credit scores. 





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