Common Credit Score Questions From Home Buyers
This Article On Common Credit Score Questions
WHAT DOES “GOOD CREDIT OR GOOD FICO SCORE” REALLY MEAN
One of the most important achievements in life (amongst many others) is to build a good credit history and thus achieve a respectable FICO score right? We all work very hard in life, day in and day out, and in doing so we pay our bills in a timely and responsible manner so we can ultimately be debt free right?
But what does that really mean to have good credit?…. Does it mean that once you’ve paid all your bills and have no more debt that you have good credit?
It’s not really that simple, on the contrary it’s actually quite interesting how credit is calculated and what it means to achieve a “good credit status”.
FICO Credit Scores
Here’s how it’s broken down and how your FICO is determined:
- 35% of your score is based on the history of your debt, in other words, the ability /responsibility of paying your debts on time (so long as you haven’t been in default and are current with all your payment obligations) demonstrates your worthiness for credit over time.
- 30% of your score is based on the amount or lever of your debt, in other words, how much debt you accumulate over time, how well you manage your debt and are in too much debt as opposed to manageable debt etc…
- 15% of your score is calculated on length of time you’ve been in debt, the longer you’ve been in debt with a good track record again demonstrated responsibility and worthiness.
- 10% of your score is based on new debt
- 10% of your scored is based on the type of debt, credit cards, auto loans, student loans, mortgage etc…
Maximizing Your FICO Credit Scores
Achieving a good FICO score and maintaining it essentially means to constantly be in debt, stay in debt and maintain a good and consistent payment history on all your accounts throughout without any slip ups, all this without accumulating too much additional debt or not having enough debt.
It’s like a fine balancing act all the time, one small slip up and it could take months to recover or a major setback could take years to recover and have rebuild your credit all over again. The idea of not being in debt is the right one, however, only if you can afford it. You see, the fact is, we all need credit at one time or another but how much and how well we manage that credit can make all the difference between walking over a very fine line or over a good tight rope.
Maintaining Good Credit
Good credit doesn’t care how much money you have in the bank, savings account, stocks, bonds etc.. or how good your income is, it’s all about the ability to repay, maintain, show stability and consistency without over extending your reach. It’s kind of like having friends, too many friends and you find out they’re not all what they appear to be, to few friends and you could find yourself a little lonely at times, but having just enough and the right type of friends who bring positive influences in your life can be positive and prosperous when surrounding yourself with the right people.
Tips And Pointers In Keeping Good Credit
I suppose it all comes back to full circle, we work our whole lives to build good credit (buy having just the right amount of debt as explained above) and as we get older the goal is to be debt free, no car payments, no credit card payments and hopefully one day, no house payment. Which over a period of time of not having any credit activity your credit history becomes what’s called “indeterminable” by this point in your life you’ve taken no new loans for years, have no new credit cards and paid them all of the olds cards off and hopefully you have saved a good amount of money and really don’t need the credit any longer as you pay cash for everything, this is truly the way to end up. Unfortunately, this is not how many of us end up as we rely on our good credit to carry us on, therefore the importance of maintaining good credit is critical because you never know what tomorrow will bring.
About The Author Of Common Credit Score Questions
This blog on Common Credit Score Questions was written Bob Vogel. Bob is a writer for Gustan Cho Associates Mortgage Resource Center and a licensed mortgage loan originator for The Gustan Cho Team @ CrossCountry Mortgage. Bob Vogel is an expert in originating and funding FHA Loans, VA Loans, USDA Loans, and Conventional Loans and what separates Bob Vogel apart from other mortgage lenders is that Bob Vogel specializes in helping borrowers with less than perfect credit and works for a national mortgage banking firm that has a national reputation of not having lender overlays.