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How High Should My Credit Score Be?
Here are some general rules for your consideration. Your minimum credit score must be at least 650. If your credit score is below 650, there are ways to fix it. Here’s how it works…
A. You can dispute anything on your credit report. If the merchant cannot provide proof of their claim, then the item should be removed from your credit report. For example, if Department Store X says you didn’t pay off the $72 balance on your X card in 1997, and you say you did, Department Store X has 30 days to provide documentation proving the bill is unpaid . If they can’t prove their claim, then the outstanding debt is discharged and you move toward a higher credit score. If department store X is right and you owe them $72, then you now know the problem and have the ability to pay the $72…again, you’re moving toward a higher credit score.
B. Get and review copies of your three main credit reports every year – more often as you approach key times when your credit score is most important.
S. The Federal Trade Commission (FTC) and CBS News estimate that anywhere from five to eighty percent of credit reports contain errors. Some bugs are really good for you and some not so much. In my mid-twenties, I checked my credit reports and was thrilled to discover that not only had I bought a new car, but I had paid it off with a perfect payment history. It was great for my young credit history – never found a car.
D. Your credit score contains five components. Here are the five components and their percentage importance:
Payment history (35%). Here, credit bureaus review mortgages, credit cards, installment loans, retail accounts, adverse government documents such as bankruptcies, lawsuits, judgments, liens, foreclosures, late payments…etc. If you have delinquent payments, CBAs will look at (a) the amount delinquent, (b) the time of delinquency, (c) the number of delinquent accounts.
Amounts owed (30%) – CBAs check the type of accounts you use and the amount of credit you use against the credit available to you. For example, other things being equal, a person with a balance equal to 95% of the credit available on ten personal credit cards with a total outstanding amount of $50,000 will have a lower credit score than a person with a 50% balance on three credit cards with a total of $10,000 in outstanding debt.
Length of Credit History (15%) – CBs look at certain types of accounts, how long the accounts have been open, and the level and timing of account activity. Surprisingly, for credit scoring purposes, it seems that having bad credit accounts (within reason) is actually better than having no open accounts or no credit history. Being debt free can really lower your credit score. I have a friend who is a very astute, very successful former international banker. He did business in more than 20 countries and lived in nine countries. This is a person with exceptional success, wealth and a very responsible method of money management. He was turned down when he applied for a credit card at the same bank where he worked. Reason: No US credit history.
New credit history (10%) – In short, the CBs are looking to see if you’ve opened or tried to open many new accounts recently. As you can imagine, someone who is thinking of lending you money is very nervous when they discover that you are borrowing money from everyone.
Type of credit used (10%) – CBs look at the balance of debt spread across different types of debt – from credit cards to mortgages and from secured to unsecured.
Your credit score is based on all of the elements listed above. For each of the categories, it is not a “pass-fail” circumstance. Your score is cumulative, and this score is constantly changing. One person’s assessment and financial profile will be different from another. The information provided here is for the thick part of the bell curve, but it provides clear guidance.
E. If you are focused on an acquisition (or other type of loan) and your score is below 650, note that a business partner score of 700 or higher can help offset your score. When lenders look at a borrower’s qualifications, they look at the whole “borrower,” whether it’s one person or a legion of people.
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