Many people wonder why we're in such a financial crisis these days. The answer may very well be attributed to the lack of education we received in school on the topic of personal debt responsibilities. Everybody should know how to work with the credit system and unfortunately, many are unequipped to do so. It is estimated that over 50% of US citizens have never even looked at their credit report and close to 90% of people have no clue how to read a credit report.
It's not uncommon for people to wish for perfect credit so that they can automatically be approved for anything they apply for, whether it be a store credit card, a car loan or a mortgage. For that dream to come true, though, people need to know what perfect credit really is, and how they can get it.
much of what you read here will not make sense to you since you have probably been told things in the past that are simply not true. There is much confusion out there when it comes to credit, so open your mind, and get ready to learn.
Maintaining the proper mix of accounts
For optimal credit, you will want to have the proper mix the following account types. Too many of some types of credit will hurt your credit scores.
When it comes to mortgages, one or two accounts is ideal. Your credit will benefit from having at least one mortgage. If you don't have one, that can be something you can work towards.
Installment loans, such as car loans, can boost your credit rating if you have between one and three loans. Too many installment loans can cause a negative effect, so minimize them if you can. Other kinds of installment loans, like store furniture loans, don't have the same impact on your scores as the larger installment loans will. The smaller installment loans can be a great option for those with little-to-no credit but they don't hold the same cache' as an installment loan with a larger value, such as a car loan or student loan.
Revolving Accounts - Credit Cards / Store Cards (Ideal 3-5 accounts): This category of account has a great deal of variance among the type of credit cards and store credit obtained. Major credit cards are more valuable to your credit than department store cards. You should shoot to have no more than about 3-5 of these type of accounts. The lower-end credit accounts such as mail-order catalogs are not looked at favorably by lenders. As with any low-end credit accounts, the more high-end accounts you have the less they hurt you.
Another factor to consider with revolving account is the length of time the account has been opened. The longer an account has been opened and responsibly cared for, the better it will reflect on your credit reports. Keeping your balances below 50% of your total credit limit can help your scores immensely. Accounts in good standing that get closed will only remain on your credit reports for two years and cancelling an aged account will most likely cause a drop in your scores.
It's not uncommon for people to wish for perfect credit so that they can automatically be approved for anything they apply for, whether it be a store credit card, a car loan or a mortgage. For that dream to come true, though, people need to know what perfect credit really is, and how they can get it.
much of what you read here will not make sense to you since you have probably been told things in the past that are simply not true. There is much confusion out there when it comes to credit, so open your mind, and get ready to learn.
Maintaining the proper mix of accounts
For optimal credit, you will want to have the proper mix the following account types. Too many of some types of credit will hurt your credit scores.
When it comes to mortgages, one or two accounts is ideal. Your credit will benefit from having at least one mortgage. If you don't have one, that can be something you can work towards.
Installment loans, such as car loans, can boost your credit rating if you have between one and three loans. Too many installment loans can cause a negative effect, so minimize them if you can. Other kinds of installment loans, like store furniture loans, don't have the same impact on your scores as the larger installment loans will. The smaller installment loans can be a great option for those with little-to-no credit but they don't hold the same cache' as an installment loan with a larger value, such as a car loan or student loan.
Revolving Accounts - Credit Cards / Store Cards (Ideal 3-5 accounts): This category of account has a great deal of variance among the type of credit cards and store credit obtained. Major credit cards are more valuable to your credit than department store cards. You should shoot to have no more than about 3-5 of these type of accounts. The lower-end credit accounts such as mail-order catalogs are not looked at favorably by lenders. As with any low-end credit accounts, the more high-end accounts you have the less they hurt you.
Another factor to consider with revolving account is the length of time the account has been opened. The longer an account has been opened and responsibly cared for, the better it will reflect on your credit reports. Keeping your balances below 50% of your total credit limit can help your scores immensely. Accounts in good standing that get closed will only remain on your credit reports for two years and cancelling an aged account will most likely cause a drop in your scores.
About the Author:
Jon Ochs is the President/CEO of Nationwide Debt Solutions, and a well respected authority on debt relief plans.
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