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Maintaining a good credit rating is vital in today's society, especially since a poor credit rating can have a devastating snowball effect towards your financial goals and home ownership.

Good, strong credit allows you to live with financial security and enables you to purchase items without depleting your life savings, and helps you to have less stress, because you know that if an emergency arises you can't just pay for, then you can finance it.

Think about it for a moment, if a company determines your credit to be unsatisfactory, you could be denied a credit card, a car, a checking account, a cellphone, a home, and more!

From the moment you are denied, your quality of living is limited. If you can't get something as simple as a credit card, you can't rent a car, order tickets to a show, or even open a checking account with poor credit.

If your credit rating is determined to be unsatisfactory, most companies will not let you use their money.

There are 5 main factors that determine your credit score. I will list them in order from most heavily weighed to least:

Payment History

This makes up for 35% of your score. Credit Reporting Agencies want to see how you have paid off past loans, and if you paid them on time. If your credit is good, one or two late payments may not affect the overall picture. 30 days late, is less damaging than being 60 or 90 days late. Needless to say, late is late. Pay your bills on time because this is the biggest determining factor.

Debt To Credit Ratio

Your debt to credit ratio is how much debt you have compared to the available credit you have. This makes up a whopping 30% of your credit score. How many cards you have does not weigh as heavily as how much you owe. If your cards are maxed out, your score will drop, and you will be considered a high risk. Having a high credit limit and not using it shows responsibility and helps your score. You want to have your debt to credit ration at 30% or less. If you are more than 30% then it will negatively affect your score.

Length Of Credit History

15% of your credit score is based upon how long you have had credit for. With this being said, if you have one of earliest, or even better, your very first credit card, do not cancel it. Because by canceling it you will only lower your credit score. If you are wanting to cut down on having so many open credit card accounts, choose one that is newer. By doing this you still maintain your length of credit history which helps your credit score.

Types Of Credit

10% of your credit score is based upon the types of credit you have. The CRAs like to see a healthy mix such as; mortgage, car, credit card, retail accounts, secured, unsecured, and revolving.

New Credit

10% of your score is from credit inquires, credit applications and new accounts. It doesn’t look good to apply for 5 credit cards at once. It looks like you are desperate for credit and will negatively affect your score.

But, keep in mind, if you are car shopping or house shopping the Credit Reporting Agencies will not weigh the inquires the same. Typically, if you purchase a vehicle within 14 days of having your credit ran numerous times it will only count as 1 inquiry. You have 45 days for a home. After that, when you pull your credit again, it will be another hard pull.

Now, that you know what determines your credit rating you are one step closer to taking control of your financial future. I wish you success in your journey to the 800 club with your credit score and financial freedom!

You are Stronger Than Failure!

Danny Cole

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