What Do Banks Look At When Looking At Credit
Katie Eckelman
Personal Banking Officer
Credit. The ominous word that so many people fear when it is brought up. Credit has a large impact on your daily life, but it should not be something you need to dread it is something that can empower you!
The most common question I am asked as a banker is “what is the minimum credit score I need?” This is a loaded question. Yes, your credit score matters, however, it is important to understand what affects your credit score.
Length of Credit History
The longer you have had a credit history, the more this helps determine how reliable you are at paying debt. Never close your oldest source of credit. If you got a credit card in college that you no longer use, do not close. Simply cut it up and stop using it. This will help maintain your credit history.
Amounts Owed
The more debt that you take out, the more it will bring your credit score down. This happens because it tells the credit reporting agencies that you need to borrow more funds, thus making it riskier that you may not pay the debtor back. As you pay down the debt your credit score will increase because it is showing that you are able to pay back the debt owed on time. If you have credit cards, try to never use more than half of the available balance. Maxing out your credit card will bring your credit score down a lot.
On Time Payments
Whenever you start using credit, it is crucial you are always paying your debts on time as agreed. If you start having late payments this will tank your credit score quickly. Setting up automatic payments can help alleviate this issue.
Types Of Credit
When determining your credit score the bureaus will look at the blend of different credit you have outstanding. Most people will have a car payment, a mortgage payment, and at least one or two credit cards. It is important to have a mix, but do not open extra lines of credit if you do not need it. If you are not a credit card user but you have a vehicle loan, you will still have a good credit score. If you just paid off your vehicle loan do not go out and buy a new vehicle because you think it will help your credit score.
It is easy to build up your credit score and this opens a lot of doors for being able to borrow money and get the best interest rates. Always remember to be transparent with your banker and know they are willing to work with you as long as you are honest with them.