Do you ever wonder why your credit scores matter? Have you ever thought about what a credit score really is? How do they come up with these random numbers? Here we will discuss the “makeup” or the face of the scores. There are five different factors/focal points that “makeup” your credit score, and here they are:

• Payment History
  • Your payment history is a detailed track record of your credit and every loan or line of credit you have obtained. This has the greatest effect on your FICO score, at a whopping 35%.
  • Three different factors are considered when reviewing payment history. First, severity is looked at. This is basically asking “How bad are the delinquiencies?” Next, recency is an issue. Depending on how long ago the consumer defaulted or paid late on an account will determine how many points the score is docked. Lastly, the frequency of the delinquencies is very important. Paying late on a line of credit over and over will absolutely crush your credit scores.
• Amounts Owed
  • Be careful here… your balance to credit limit ratio is a HUGE factor in determining your credit score, 30% to be exact! If you have 3 credit cards that are all maxed out, your credit score is going to affected GREATLY. I will let you in on a little trick though. If you pay your accounts down to roughly 30%, you have hit the sweet spot. It shows use of your cards, but also keeps the balances at a percentage under 50% and helps your credit scores build each month, keeping your history stable.
• Length of Credit History
  • Starting with this category, we bring down the weight percentage a little bit, but still a substantial amount at 15% of your score. As I said under “Amounts Owed”, your length of credit history DOES hurt you at first, but as the life of the loan or line of credit extends, it begins to help and build  your scores. If you have a derogatory account (let’s go with a collection), then it is going to substantially weaken your score for up to 24 months. After the 24 month mark, the detriment to your scores is less, but still has an effect.

• New Credit
  • Let’s say you go get an auto loan. You have just put a substantially large amount of debt onto your reports, showing as basically maxed out. This is going to hurt you for the first six months of the life of the loan, but after that, going forward, it will actually help you out, help build your scores, and show more good credit history and good standing, current, open accounts. Also, if you apply for any type of credit, there will be an inquiry for each one on your reports. An excessive number of inquiries labels you as a risk factor, and will typically be denied the credit. The weight of this factor is 10%.

• Types of Credit Used
  • I have previously talked about having at least three revolving lines of credit and two installment loans. You want to mix up your accounts with credit cards, retail cards, car loans, mortgage, and so forth. A variety is a good thing… a “healthy” mix! This is also 10% of your score makeup.

Keep up the great work on maintaining great credit, and this economic crunch won’t take such a harsh toll on you and your family!

A good analogy is a great way to put real life images and situations into something a little more complicated to understand or mentally grasp. It is clarity for the ones whose forte may not be the topic of discussion. I titled this blog “The Credit Plant” to confuse you at first, because you are probably wondering what on Earth that is, but to clarify the topic by pointing out to you the following analogy (and no, it does not have to do with money growing on trees!).

We do credit restoration. We don’t do the typical “open-ended contract, $99 a month for the rest of your life, flood the bureaus with letters until they suffocate” credit restoration. We coach, teach, build relationships with our clients, and perform intense audits on the credit bureaus and creditors. If there is anything to know about credit, I will either know it off-hand, or I can find the correct answer VERY quickly. Here is one of the main coaching tips or points of view that we go over with all of our clients to really show them a good analogy in keeping their credit clean and beautiful. When I talk about “The Credit Plant”, it is a metaphor for how to grow your credit scores, credit history, and credit worthiness. So here we go…

Believe it or not, your credit IS like a plant. Let’s get visual here and go with a Tulip. You can pick whatever type of plant you wish for your credit, but I’m going with Tulips for the sake of a pretty mental image, because that’s what you want your credit to look like… pretty. So you have your plant, the Tulip, and you want to grow that plant to where everyone can see it for its beauty and purpose, or maybe you just want to add a little color to your front yard, who knows. However, you’re having a difficult time growing the tulip because of all the weeds growing around it, it’s dying of thirst, and it needs more sunlight. Well let’s begin pulling those weeds to clear out some room for your pretty Tulip. That is what we do as a company to start the credit restoration process. You have this potentially beautiful credit report, but a rough past has caused a multitude of derogatory and negative line items, the weeds, to spring up and damage your scores. We help you pull those weeds by auditing the creditors and credit bureaus. While we’re pulling those ugly weeds by the roots, we still have to give your Tulip some water and sunlight.  It doesn’t matter if we help get every single negative line item off of your reports if we don’t shed some light on them to help grow that score. So how do we feed that flower water and give it some rays? We add positive trade lines. We can dispute to the bureaus and creditors all day, maybe resulting in 100% deletions of negative line items on your credit reports, but those credit scores are not going to bloom unless you add trade lines, the water and sunlight, to give your scores the most potential. Keep in mind that drowning a flower also kills it, so make sure you add a reasonable amount of credit cards and installment loans, and don’t get “application happy” while surfing the internet.  As long as you have a healthy mix of credit, minimal negative line items, and the will to keep working to stay financially stable and credit worthy, then your Tulip is going to bloom with color, vibrancy, and maybe even a new boat!

This may come off as a silly analogy to many people, but it is the truth, and a great visual. There are different factors in having great credit. You have to push yourself to keep up with your payments on bills, open new trade lines if needed, and understand the concept of what I just went over. Let your Tulips bloom healthily and visually resonate all the way to your new home!