How is My Credit Score Calculated?

When it comes to getting approved for a loan, nothing is more important than your credit score; a number which indicates how likely you are to pay back your debts. A good credit score will generate more loan opportunities (at better interest rates) than a poor credit score will.

How is your credit score calculated?

The most common credit score, FICO, is calculated by the Fair Isaac Corporation. It can range from 300 to 850, with higher numbers indicating a better score. Generally, anything over 740 is considered “excellent”.

Your credit score is calculated based on five major components of your credit history, each weighted with varying importance:

Payment History – 35%

Your payment history is the most important factor of your credit score. Paying all of your bills on time, and in full, is the best way to keep this number high.

Amount Owed – 30%

Also known as your utilization ratio, this number looks at how much of your total available credit you are actually using. For best results, never borrow more than 30% of your maximum credit limit.

Length of Credit History – 15%

Determined by the average age of your credit accounts, as well as the amount of time since the account’s most recent transaction.

New Credit – 10%

Opening several new credit accounts in a short period of time signifies financial trouble, and could scare away potential lenders.

Credit Mix – 10%

This considers the different types of credit in your account: such as credit cards, student loans, car payments, mortgages, etc. Research shows that borrowers with a good mix of credit are more trustworthy to lenders.

Have questions about improving your credit score? The financial advisors at American Investment Planners, LLC are happy to assist. To schedule an appointment with one of our professional consultants, please call (516) 932-5130 or email info@americaninvestmentplanners.com.

The Key to Having a Great Credit Score

American Investment Planners LLC

500 North Broadway, Suite 260, Jericho, NY 11753

(516) 932-5130 / (866) 932-5130

Having a great credit score is certainly something you want to accomplish for your own peace of mind and success, but truth is, you need a great credit score for a lot more reasons than that - one of the biggest reasons is to get the best offers when shopping for a mortgage. Now, while building credit does take time and requires hard work and patience, there is one strategy in particular to focus on immediately (according to time.com's Money, 3 out of 4 people with excellent credit do this). And what is that strategy? Paying your balance in full.

Despite the fact that many people believe you should carry a balance from month to month, research suggests that when you pay your balance in full instead, you're likely to see better results - data explains that 73% of consumers that boast a FICO credit score of 800 do, in fact, pay off their credit cards in full each month. 

So why is paying your balance in full the best approach?

Well, the amount of money that you owe plays a pretty significant role in determining your FICO credit score - in fact, 30% of your score comes from this. When coming up with that aspect of your score your credit utilization ratio is looked at, which would be the percentage of credit that you're using - keep in mind that the key is to really have access to open credit, rather than actually using that credit. Tip: try not use more than 30% of your available credit, as your credit score will typically drop when you go above this threshold.

If you're looking for ways to improve your credit score and are someone that usually carries a balance each month, now is the time to start paying things in full. However, since we know this can be difficult, here are two easy tips you can follow as you begin:

1. Stop using that credit card. It would be pretty hard to get your balance to be $0 if you continue to charge things each month, so while you work on paying down your debts, avoid using that card in its entirety.
2. Re-evaluate your budget. When was the last time you really analyzed your spending habits? If it's been a while, chances are you can find a ton of places where you can cut back on spending, which would give you extra money to use towards your debts.

Have more questions about achieving a great credit score? As a trusted financial planning firm, we can assist you with various aspects of financial planning, as well as answer any other questions you may have on financial topics.

To speak with one of our advisors, please give us a call at (516) 932-5130 or email info@americaninvestmentplanners.com.

3 Reasons Why Good Credit Is So Important

American Investment Planners LLC

500 North Broadway, Suite 260, Jericho, NY 11753

(516) 932-5130 / (866) 932-5130

From the moment we enter school as young children we're taught that numbers are important, especially when it comes to our grades - final exams, SATs, mandated state exams, and then finally our college GPA. But what people often fail to stress the importance of is how numbers affect your life after school, and specifically, how they impact you financially.

This is where credit comes in. We all have a credit score (which is determined by factors such as payment history, the amount of debts owed and the length of credit history), and in order to achieve certain things and make certain purchases, the number associated with our name needs to be one that indicates that we are financially responsible. Below, we're breaking down some of the specific reasons why having the right credit score is so important:

1. It affects interest rates. Hoping to become a homeowner? Not only does a poor credit score hurt your chances of being issued a mortgage, but it also makes it more likely that you'll have a higher interest rate if you're approved. Essentially, that means you put yourself at risk for having a higher monthly payment.
2. It can affect your employment. Depending on the field you are trying to enter, some employers may complete a credit check during the hiring process. Similarly, if you are being considered for a raise or a high-level promotion, some may choose to check your credit score to see just how financially responsible you are.
3. It affects homeowner expenses. Believe it or not, companies that provide service to homeowners and/or renters (such as cable companies and electric companies) often check your credit to learn about your financial history. Although these companies aren't lending you money directly, some see it as lending you a service each month, which makes it important for them to be able to trust that you will pay for what was provided.

While there are ways to bounce back from having a poor credit score, it's also important to realize that your history will follow you - that's why you need to work on establishing good credit as soon as possible!

Have questions about how to do so? Contact the advisors here at American Investment Planners LLC, and connect with us on social media/review our blog regularly - we update our profiles with financial tips like these as often as we can!

Reasons Why You Need To Check Your Credit Report

American Investment Planners LLC

500 North Broadway, Suite 260, Jericho, NY 11753

(516) 932-5130 / (866) 932-5130

We all know that it's important to have good credit - after all, your credit score directly effects your ability to buy/lease a car, get a mortgage, take out a loan and so much more. But what many of us fail to remember is that it is just as important to check up on your credit report regularly, or at the very least, once a year. In fact, according to USA Today, even though we have the opportunity to check our credit report for free every 12 months, a study conducted in 2015 by the National Foundation of Credit Counseling suggests that approximately 2 in 3 adults haven't.

Now that you know that you should check your credit report, let's move onto the why; here are three reasons:

1. Errors: Errors are natural and are something we may experience in almost everything we do, but there isn't much room for them when it comes to your credit score. If your report has inaccurate information - whether it just be out right wrong or someone else's information - you may not be the right candidate for a loan or the like in a lender's eyes. And since correcting a credit report error can take quite a bit of time, you want to make sure it's taken care of well before you need to apply for something that requires your score.
2. Identity Theft: In the unfortunate event that someone has been using your information, you may not notice it until it's too late - unless you check your credit report, that is. By double checking the accounts and inquiries that appear on your credit report, you can more easily detect if someone has been using your identity for things such as applying for credit or making purchases. Although your credit card company may be able to alert you of unusual activity, checking your credit report for yourself can help you rest assured knowing that you are aware of everything that's happening under your name.
3. Savings: Your credit score determines how much interest you pay back on certain loans, and if yours isn't accurate, then you may be spending money you shouldn't be - to save on interest, double check that your credit score is where it needs to be. But, if it's not, knowing your credit at any given moment can help you determine what you need to do to get it there - for example, if you see that you're guilty of making late payments, now you know what you need to change to raise your credit score back up.

Considering that your credit score has such a large impact on many of the things we do, we hope you take this to heart and make a mental note to check your score at least once each year - you'll be glad when you do!

American Investment Planners LLC offers tax planning, estate planning, retirement planning and more to generations of families throughout the United States. More information about the services offered is available at www.americaninvestmentplanners.com.

Hard vs. Soft: The Difference Between Types Of Credit Checks

American Investment Planners LLC

500 North Broadway, Suite 260, Jericho, NY 11753

(516) 932-5130 / (866) 932-5130

Whether you are looking to buy a house, lease a car, open a new credit card - essentially anything that requires a loan in some shape or form - lenders will check your credit to determine where you stand as a candidate for their services. When it all comes down to it, that means you need to have excellent credit! However, even if you have a proven track record of paying back the money you've been lent in the past, that doesn't guarantee that your credit score will be through the roof - did you know that credit checks impact your score, and potentially negatively?

In the financial world, there are two types of credit checks - hard and soft. But what's the difference? Below, we cover the basics of each to help you become more familiar with both:

Hard Inquiries

Hard inquiries are credit checks that occur when a potential lender runs and views your credit report to figure out whether or not they will lend to you. According to Credit Karma, these types of inquiries may remain on your credit report for two years. Though they have shown to lower credit scores, over time, the damage that has been done usually repairs itself, allowing your credit score to rise once again. Prior to checking your report in a way that results in a hard inquiry, lenders must let you know they will be doing so - if permission is not granted, you should call your creditor to inform them that the check wasn't authorized. Examples of hard inquiries include:

• Applying for a credit card
• Applying for a mortgage
• Applying for a car loan

Soft Inquiries

Soft inquiries are credit checks that occur when a person or company checks your credit report - think of it as a background check, for example. Unlike hard inquiries, these take place without your permission, but that shouldn't be a concern since they do not affect your overall credit score. Examples of soft inquiries include:

• Checking your own credit score
• Getting pre-approved for a credit card
• Employer background checks

Of course there are some circumstances where what you think is a soft inquiry turns out to be a hard inquiry, which is why it is recommended to always ask the lender to advise you on what type of credit check will be taking place. And remember, since hard inquiries do affect your score, you must be mindful of how often you are opening up new credit cards and applying for new loans - especially if they are done on a whim!

American Investment Planners LLC offers tax planning, estate planning, retirement planning and more to generations of families throughout the United States. More information about the services offered is available at www.americaninvestmentplanners.com.

Tips To Improve Your Credit Score

American Investment Planners LLC

500 North Broadway, Suite 260, Jericho, NY 11753

(516) 932-5130 / (866) 932-5130

If you've ever gone through the process of applying for a mortgage, buying a car, or even something as simple as signing up for a new credit card, then you are likely well aware of how important a good credit score is. And even if you haven't had these experiences yet, you are probably at least familiar with the idea of a credit score and what it means for you in various aspects of your life.

Since your credit score plays a major role in your ability to achieve success in several financial situations, we wanted to take this opportunity to offer a few tips that can help you improve yours; check them out below:

1. Always check your credit report for errors. Mistakes are a natural part of life (we all know that) but when they wind up on a credit report, they could be extremely damaging to your financial future. If any are evident, take the next steps by meeting with a financial expert to learn how to dispute them.
2. Make paying your bills on time a priority. Although many would think that this is a given, you would be surprised at how often people fall behind or miss their due dates. According to an article by U.S News & World Report MONEY, 35% of your credit score comes from your payment history - that's why it is so important to keep a close watch on your bills and stick to a rigid payment schedule.
3. Avoid cancelling old credit cards even when you aren't using them regularly anymore. Did you know that approximately 15% of your credit score is determined by the length of your credit history? Even though you might not be reaching for them in your wallet as often as you used to (but you should still be using them to some extent!), it's a good idea to keep accounts open to show that your history is still there.
4. Keep a close watch on how often hard inquiries are placed on your account. Hard inquires typically occur when financial institutions check your report to determine whether or not they will lend you a sum of money (for example, a mortgage). Since businesses that do so are required to tell you that they will be checking your report beforehand, you can keep a record of all of the potential hard inquiries that will affect your credit score. Hint: the less you have, the better!
5. Reduce your credit utilization rate by applying for higher credit limits. The amount of credit that you use directly influences your credit score, so by having a higher rate, it will seem like you are using less even if you are charging the same amount as you were in previous months. However, be weary of spending more if a credit increase is issued - just because you have more available doesn't mean you should use it all at once!

For additional tips on how to improve your credit score, please click here.

American Investment Planners LLC offers tax planning, estate planning, retirement planning and more to generations of families throughout the United States. More information about the services offered is available at www.americaninvestmentplanners.com.