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!

How To Start Building Your Credit

American Investment Planners LLC

500 North Broadway, Suite 260, Jericho, NY 11753

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

If you've ever sat with someone as they applied for a credit card or loan or you've tried to do so yourself, then you likely have a good understanding about how important credit is. Ultimately, in order for a lender to determine whether or not you're a dependable borrower, they're going to look at your credit report and score to learn about your payment history, your outstanding debts, and so much more.

Now, for those who are just taking on their own financial responsibilities for the first time, a common question is how can you get your credit score where it needs to be? This certainly makes sense, considering that without any credit history lenders may be more hesitant to hand out a loan - and that, as you may know, turns into one big vicious cycle of trying to establish credit in the first place.

We have good news for you today, though - there are plenty of approaches that you can take to begin building your credit and get it to where it needs to be in order to qualify for car loans, mortgages and more; some include:

1. Apply for a secured credit card: since secured credit cards require the borrower to put down a cash deposit, these can be much easier to get when you have no credit history to prove your dependability.
2. Apply for a student credit card: lenders know how important it is for young adults to start building credit, which is why many will offer credit cards specifically for this age group.
3. Ask to be an authorized user: if mom or dad feels comfortable, having your name listed as an authorized user on their credit card can help establish some credibility for yourself.
4. Make your payments on time: once you're approved for a credit card or have other debts in your name (such as student loans), make sure you're sending payments in on time, 100% of the time.
5. Keep credit card debts low: just because you're approved for a credit card doesn't mean you should max out your spending limits. In fact, it's recommended that you keep your balance at or under 30% of your credit limit.

Like we said earlier, having good credit is extremely important in order to take on larger financial responsibilities in the future, so if you have yet to do anything to build yours, start today!

Still have questions on how to do so? Contact our team by calling (516) 932-5130 or email us at info@americaninvestmentplanners.com.