Credit 101

A credit score is a numerical representation of your creditworthiness, indicating how likely you are to repay borrowed money on time. Lenders use it to assess risk when you apply for loans, credit cards, or other financial products.

Credit scores are calculated based on information in your credit report, typically using models like FICO or VantageScore. Key factors include:

• Payment history (35%): Timeliness of payments on credit accounts.
• Amounts owed (30%): Total debt and credit utilization rate.
• Length of credit history (15%): How long you've had credit accounts.
• Credit mix (10%): Variety of credit types (loans, credit cards, etc.).
• New credit (10%): Recent applications and new accounts.

Lenders analyze these factors to determine your score, which generally ranges from 300 to 850. A higher score indicates better credit health.

• Late Payments: Late payments can remain on your credit report for up to 7 years from the date of the missed payment. 
• Charge-Offs: These can also stay on your credit report for up to 7 years from the date of the original delinquency that led to the charge-off. 
• Collections: Accounts sent to collections typically remain on your credit report for up to 7 years from the date of the original delinquency. 
• Bankruptcies: Chapter 7 bankruptcy can remain on your credit report for up to 10 years from the date it was filed. Chapter 13 bankruptcy usually stays for 7 years from the filing date. 
• Foreclosures: A foreclosure can stay on your credit report for up to 7 years. 
• Judgments: If you have a judgment against you, it can remain on your credit report for up to 7 years from the date it was filed. 

It is worth noting that while negative entries can affect your credit scores, their impact may lessen over time, especially if you manage other aspects of your credit responsibly.  Additionally, some older items may drop off your report automatically, and you have the right to request that inaccurate information be either corrected or removed. 

The top credit factors that can negatively impact your credit score include:

1. Late or Missed Payments: Missing payments or paying late can significantly lower your score.
2. High Credit Utilization: Using a large percentage of your available credit (generally above 30%) can hurt your score.
3. Recent Credit Inquiries: Applying for multiple new credit accounts in a short period can suggest financial distress.
4. Many New Accounts: Opening several new credit accounts at once can be viewed as risky.
5. Charge-offs and Collections: Accounts that have been charged off or sent to collections indicate payment problems.
6. Auto or Mortgage Repossession: Losing collateral due to missed payments negatively impacts your score.
7. Short Credit History: Having a limited credit history can make it harder to establish a high score.
8. Public Records: Bankruptcies, liens, or judgments can severely lower your creditworthiness.

Addressing these factors by paying bills on time, reducing debt, and limiting new credit applications can help improve your score.

Here are some steps to quickly boost your credit scores:

1. Pay bills on time: Set up payment reminders or automate payments to ensure timely payments.
2. Reduce debt: Lower your credit utilization ratio by paying down high-balance accounts.
3. Monitor credit reports: Check for errors and dispute any inaccuracies.
4. Avoid new credit inquiries: Limit new credit applications, as they can temporarily lower your score.
5. Pay down high-interest debt: Focus on paying off high-interest loans or credit cards first.
6. Build a positive credit mix: Aim for a diverse mix of credit types, such as credit cards, loans, and a mortgage.
7. Avoid negative marks: Avoid collections, repossessions, and foreclosures.
8. Consider a secured credit card: If you're struggling to get approved for regular credit, a secured card can help you establish or rebuild credit.
9. Make on-time payments for 6-12 months: Consistent on-time payments can help boost your score rapidly.
10. Consider a credit repair service: If you have extensive credit damage, a reputable service can help you navigate the process.

Keep in mind that quick fixes might not be sustainable, and maintaining good credit habits is essential for long-term success.