How to Best Manage Your Credit Score
Presented by: Advisor, Maggie Johndrow
Co-authored by: Intern, Evelyne Beaule
To start, your credit score influences lenders', creditors', or employers' perception of your ability to handle financial responsibilities. It specifically helps lenders assess the risk of loaning you money. A higher score indicates less risk in offering credit, and a lower score indicates higher risk. Credit scores range from 300-850, with five categories within that range: poor, fair, good, very good, and excellent). When thinking about maintaining good credit and a good credit score, you have to know the factors that make up your credit score.
1. Payment History
Payment History accounts for about 35% of your credit score and is considered the most significant aspect of your score. This is where all your account payment information falls. It examines the number of accounts you have and if there were any late payments on your credit report. The number of late payments and the length of how late the payments were made will be significant factors in impacting your credit score.
2. Amount Owed
Amount owed is responsible for 30% of your score and looks at how much you owe on loans and credit cards. It factors in your entire amount owed, the number and categories of accounts you have, and the ratio of money owed to how much credit you have available, which is called the credit utilization ratio. It is advisable that you keep a low ratio and pay down your credit card balances on time to have good credit and help out your bank account. You may also want to consider how long it would take to pay off your credit card before you accumulate high balances.
3. Length of Credit History
Length of credit history accounts for 15% of your score and observes how long your accounts have been open and active. A more extended credit history will provide a better picture of your financial behavior to lenders and show if you have made on-time payments. Many are fooled that avoiding applying for credit and acquiring debt is a wise choice, but that provides an opportunity to hurt your credit score because you will have no credit history, and lenders will have nothing to base their decisions on.
4. Credit Mix
Credit mix is responsible for 10% of your score and evaluates the different types of accounts on your credit report. A diversified mix of accounts, such as credit cards, installment loans, retail accounts, mortgage loans, or finance company accounts, could benefit your credit score. Regardless of the number and types of accounts you have, it would help if you avoided new credit applications for the sake of improving your credit mix.
5. New Credit
New credit accounts for the last 10% of your score and refers to the number of accounts or applications for credit opened recently. If you were to apply for many new credit accounts in a short time, this could signify financial trouble and present as a sign of risk. Rather than doing this, apply for and open new credit solely when you need it.
To best achieve your financial goals without going too far into debt, use loans and credit cards responsibly and try to make your payments as promptly as possible. It is best to be organized when it comes to tracking your spending and the number and dates of bills you have due. If your credit report shows lenders that you can handle credit well, they will be more inclined to offer you credit.
Johndrow Wealth Management LLC Is located at 2 Bridgewater Rd. Suite 101 Farmington CT 06032 and 1555 Post Road E. Suite 203 Westport, CT and can be reached at 860-470-7424. Securities and advisory services offered through Commonwealth Financial Network®, member FINRA/SIPC, a registered investment adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network®.
© 2022 Commonwealth Financial Network®
Presented by: Advisor, Maggie Johndrow
Co-authored by: Intern, Evelyne Beaule
Evelyne Beaule is a new part of the Johndrow Wealth Management team with her role being an intern. She is a senior at Miss Porter’s School and is looking forward to attending Connecticut College in the near future. She is interested in behavioral economics and looks to gain experience in the financial world to lead her studies and what she might do in the future.