Did you know that a low credit score can affect your employment opportunities? More and more employers are looking at your credit. Getting hired, promoted, or receiving a company credit card can depend on your credit due to company policies and procedures that mandate a strong credit report and score, regardless of how much they like you. Also, there is almost no way for a person to be hired by the government, banks, lending companies, insurance companies, advising firms, or accounting firms if they have a bad credit score or report.
The five factors that comprise your credit score are:
35% – Payment History
- A recent 30-day late will cost you 100 points immediately.
- Being past due just 1-day on an account can cost 50+ points.
30% – Amounts owed (25% revolving and 5% installment debt)
- Keep revolving debt balances under 30% of the limit to improve your credit score (at least 3 months prior to applying for credit).
- Keep revolving debt balances under 50% to maintain a lower credit score.
- A maxed out credit card can cost 50+ points; Over the credit limit can cost 75+ points.
- Pay down each credit card evenly by its ratio to your total credit card debt.
15% – Length of credit history
- Keep old accounts active.
- Don’t close credit card accounts unless you’re a victim of identity theft, you’re getting divorced, or an authorized user on your account has a high balance or negative history.
10% – Mix of credit
- It’s good to have a mixture of both revolving and installment accounts.
- 2-3 revolving credit cards are optimal with an established credit history. Don’t use 3rd party cards (i.e., department store, gas cards, etc.).
10% – New credit inquiries
- Soft inquiries don’t impact your credit score.
- Hard inquires (i.e., when you apply for credit) do. A hard inquiry can cost between one and 15+ points, depending on your current score, and can remain on your report for 2 years.
- Multiple mortgage or auto inquiries will only be counted as one within a 30-day period.
John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit http://www.chladekwealth.com.