The ABC’s of Good Credit To Help You Understand Your Credit Score

There are 5 major categories that help determine your overall credit score:

1) The biggest piece of your credit score is your payment history, this represents 35% of your overall credit score. This is why paying your bills on time is extremely important and has a major impact on your credit profile.

2) The amount of revolving debt such as credit cards that you owe compared to the size of the credit line, represents 30% of your credit score. So a person with outstanding payment history, but has credit cards that are at their maximum limits can have a very low credit score. Paying down your balances to at least 50% of the credit line can make a major improvement in your overall credit score.

3) The 3rd factor is the overall length in your credit history, so the longer you have established accounts that are in good standing the higher your credit score will be. In addition to this, closing old accounts can bring down your credit score.

4) The fourth factor is the source from where the credit line was obtained, so it’s always better to have credit lines from a bank than from a finance company.

5) When you obtain new installment debt, in most cases, it will lower your credit score, because there is no history on this new debt. For example, when you purchase a new car, normally for several months your credit score will temporarily drop, because you have not established a new payment history. Making timely payments can help bring your score back up.

Credit scores are very important for a VA loan since lenders use a risk-based pricing model, with a higher credit score, you will be considered a lower risk and will receive a lower interest rate.