This past Saturday I spoke at the monthly meeting for the NIREA (Northern Indiana Real Estate Investors Association). Several of the comments and questions that I heard were from people who still thought that "Pay History" is what determines a credit score. Those of you who read my blogs regularly or have read one of my books know that "Pay History" has only a minor impact on a credit score. Let me explain.
- 35% of the credit score (297.5 points) are determined by PAY HISTORY.
- 30% of the credit score (255.0 points) are determined by BALANCE RATIO.
- 15% of the credit score (127.5 points) are determined by LENGTH OF HISTORY.
- 10% of the credit score (85.0 points) are determined by TYPES OF ACCOUNTS.
- 10% of the credit score (85.0 points) are determined by RECENT ACTIVITY.
All five factors have an impact on the credit score. For Length of History for example, it doesn't matter for these 127.5 points if you have paid the account perfectly or are 90 days past due....it only adds up how long the account has been open. The longer the history, the more of the 127.5 credit scoring points you receive. It may not seem right, but that's the way it is.
In the end, keep in mind that everything matters. Only 297.5 points are set by pay history while 552.5 points do not look at pay history at all.
My suggestion- Learn the Everything!