The average American has 14 credit accounts, five of which are credit cards. But in a recent survey, 54% of Americans polled say they never check their credit report. Why should you? An estimated 20% of credit reports contain errors that can cost you big bucks considering a great credit score can save you over $200,000 in mortgage, auto, and credit card interest over your lifetime.
Oct. 17 is National Get Smart About Your Credit Day, so here are some fun facts and tips for keeping your credit in tip-top shape.
What Makes Up My FICO Score?
First, let’s talk about what makes up a FICO credit score, which is the formula used in 90% of all lending decisions.
- 35% of your score comes from how you pay your bills. Pay on time every month and you gain points; pay your bills late, your credit score can tank fast.
- 30% is built from amounts owed, especially on revolving accounts. Strive to keep those credit card balances as low as possible.
- 15% of your score is calculated from your length of credit history. The longer you’ve managed your credit wisely, the better you score is going to be.
- 10% comes from new credit. If you’re opening multiple credit lines and allowing inquiries, these actions may decrease your credit score.
- The final 10% is calculated from a mix of credit. A mortgage loan, car note, and a couple of credit cards show you can manage all types of debt effectively.
- Credit scores are driven primarily by the information generated within the last six months.
Keep in mind that employment status, level of education, marital status, where you live, age, race, and gender are NOT factored into your credit score.
The Good and Bad of Managing Credit
Now let’s look at how Americans manage their credit. We’ll begin with the good stuff.
- 2% of Americans have a perfect credit score of 850. A credit score of 810 is basically as good as 850, because it puts you in the Excellent Credit category to qualify for the best rates.
- The nation’s average credit score has hit an all-time high of 703, according to Experian in the second quarter of 2019.
- 58% of perfect credit scores are held by Baby Boomers.
- Negative information eventually falls of your credit report. For example, a Chapter 13 bankruptcy falls off in seven years, and a Chapter 7 bankruptcy falls off in 10 years.
There are also some not-so-positive statistics about how Americans are managing their finances.
- Credit card debt hit a record high at the end of 2018, with the average consumer holding $3,100 in credit card debt.
- Those 60 and older hold 30% of the nation’s credit card debt.
- Only 24% of the population has a FICO score between 670 and 739; 33% of consumers have credit scores of 669 or lower, which are considered fair to poor.
- A record 7 million consumers were 90 days or more late on their car payments according to The Federal Reserve Bank of New Yorkearlier this year.
- Around 30 million Americans have a debt that has gone to collections.
- 26 million Americans are “credit invisible,” which means they don’t have enough credit to generate a score.
Tips for Improving Your Credit Score
- It doesn’t hurt your credit if you want to check it. Ordering and closely reviewing your credit report every six months from all three credit bureaus – Experian, TransUnion, and Equifax – is a smart fiscal move, and it won’t be counted as an inquiry against you. Check your credit report for free at annualcreditreport.com.
- Credit scores change constantly. If your score is low, you can improve it by paying down your debt, making your payments on time, and not opening new credit accounts.
- Being added to a credit account as an authorized user may increase your credit score. The main account holder needs a history of paying that account on time, the account must be opened at least seven years, and it needs a low balance.
- You may think the fewer credit cards, the better. However, closing credit cards may decrease your score, because it wipes away positive credit history and increases your credit utilization ratio.
Mortgage Investors Group (MIG) is committed to helping families in the Southeast fulfill their dreams of homeownership. As we celebrate National Get Smart About Your Credit Day, we hope these tips have helped you to understand how to boost your credit score. Contact us today to discuss your mortgage options.