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- Your Portfolio of Credit MattersPosted on: 2009-04-09Although we, North Shore Advisory, Inc., know a great deal about how the Fico Score system works and what affects it there is much that is kept secret. We have come across credit reports, once in a very long while, where the consumer only has 2-3 lines of credit and the score has been as high as a 800. Usually having two lines of credit would deliver a low score. How could this be it is perplexing? Instead of focusing on what we don’t understand we have decided to figure out what, for the most part, insures great scores.
Having a wide range of credit in your credit portfolio is the way to build an excellent credit score. We know that the scoring system wants to see who we are as consumers by viewing our payment patterns. The best way for them to see us is by reviewing our ability to manage many types of credit. Revolving, Installment, Mortgages, these types of credit give the scoring system the ability to predict our risk level.
Revolving credit (credit cards, lines of credit) impacts the score the most because it is the only credit that we have total control over. We can charge as much as our limit allows and pay as little as the minimum suggests. Therefore when balances are high on this type of credit the score plummets downward. Because installment credit (auto loans & leases, student loans) is always the same amount of payment monthly the balance ratio, although it hurts when high, does not impact the score as much.
Mortgages, lines of credit, overdraft on a checking account, different types of credit cards, show the score your vast ability to manage credit. But it is important to know that when you are building your portfolio of credit by opening new accounts the score will drop until they become seasoned (over a year or two old). SO PLEASE DO NOT RUN OUT AND OPEN CREDIT IF YOU ARE APPLYING FOR A LOAN IN THE NEXT YEAR. This is only to be done when you will not need to open credit for a year or so. No matter how few or many accounts you have if your balances are high your score will drop dramatically.
Website:www.northshoreadvisory.com
