The Credit Game
Do you know the five factors that determine your score in the Credit Game? When playing any game-if you don’t know the rules you are destined to lose and losing this game can be very costly.
As a young boy I was persuaded to put in a nickel and join in a card game. After my first move, one of the other players yelled RENEGE and took my nickel. I was shocked! I lost my money because I did not know the rules of the game and I was mad because I let those guys take advantage of me. Back then a nickel was a lot of money to me and losing that money made a big impression. But that taught me a valuable lesson and that was to be sure that I knew the rules before I entered into any other games-especially if they involved money.
As an adult and a real estate investor I found myself playing another game where I didn’t know the rules and this one was costing me a lot of nickels. Once I realized it was a game and one that I had no choice but to play-I was determined to master the rules and start winning. The game is the Credit Game and if you want to keep your money you have to play it whether you like it or not.
Here is an overview of the rules.
Scores range from 350 to 850 and the goal is to attain a score of 720 or higher. Although a score of 680 is considered to be excellent it takes a 720 to be a consistent winner.
There are five major factors that determine the score. They are in order of importance:
Payment History = 35%
Outstanding Balances = 30%
Length of Credit History = 15%
Types of Accounts = 10%
Credit Inquiries = 10 %
1. Payment History: Points are gained by making payments and making them on time every time. Points are lost for missed or late payments and lots of points are lost for any public records such as judgments or bankruptcies. Points can be regained by learning to challenge and having these derogatory items removed from the score sheet.
2. Outstanding Balances: The use of revolving credit can have a positive effect on the score. Higher scores will result from having several older revolving accounts that have excellent payment histories and low use of available credit. If more than one-third of the available credit, on any credit card, is used points will decrease substantially. The score can be raised by paying the balance down or by transferring some card balances to other cards to bring all of them below the magic 30% level.
3. Length of Credit History: The longer there has been access to credit, the higher the score and the longer it has been since there have been any credit problems, the better the score. Example: Having open revolving accounts in good standing for 20 years will make the score much higher than if the account was recently started. The dates of the last action also have an effect on this portion of the score. Paying off old collections will only move the last action date to the present and points will be lost.
Tip: One of the quickest ways to improve a score is by getting listed on someone’s long term well paid account.
4. Types of Credit Accounts: Points are given for having a number of different kinds of open accounts that are in good standing and have been open for a good amount of time. Points are taken depending on the risk that is associated with each of these accounts, and the ratio between revolving accounts (i.e. credit cards) and installment accounts (i.e. bank loans). Keeping a good balance will increase points.
5. Credit Inquiries: By avoiding having credit checked-scores will remain higher. Having credit checked often will lower the score. Too many new accounts and lots of credit inquiries cost points. Points are also lost when credit is shopped. For example when purchasing an automobile-a bank will probably only do one credit check but an auto dealership might shop the credit and many points could be lost.
Losing at this game will inevitably result in being denied new credit or receiving loans with high origination fees and ridiculously high interest rates. But winning the Credit Game will save untold thousands of dollars over a lifetime. No matter how good or poor your credit is-it can be made better by learning the rules of the game and following them to the letter. To learn more about how to play the Credit Game I suggest you get “7 Steps to a 720 Credit Score” by Phillip X. Tirone and study the techniques in that program.
The author has permitted the reprinting and redistribution of this article.