NDSU Extension Service - Mercer County


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Is it possible to have too high of a credit score?

credit, credit score, factors that determine a credit score, ways to raise your credit score

Submitted by Dena Kemmet, Extension Agent/Family and Consumer Sciences

Possibly. There is some evidence that having too high a credit score could have some negative consequences. Several financial publications have reported that consumers with a credit score of 820 or higher (out of a possible 850) may not receive as many new credit card offers as those with a score of, say, 750 to 800.

However, if credit scores are like a "report card" in school, high credit scores are similar to a high grade point average.

Credit scores are a three-digit number, ranging from 300 (lowest) to 850 (highest), used to measure the risk that borrowers will become delinquent or default on their debt obligations. Credit scores are a mathematical gauge of a person's creditworthiness. Most lenders do not know many of their borrowers personally so credit scoring helps them make objective decisions and determine the amount of risk associated with lending to a particular borrower.

What factors determine a person's credit score? Below are the five most important factors affecting scores and their weighs as a percentage of the total score.

1. Previous Payment History (35%)-This is the most important factor in determining credit scores. On-time payments enhance a person's score while late payments subtract points. The more credit accounts that have late payments (e.g., three creditors versus one), the later the payments (e.g., 90 days late versus 30 days), the more negative the impact on a consumer's credit score. To raise your credit score and/or keep it high, pay at least the minimum amount due on or before the due date.

2. Amounts Owed Relative to Credit Limits (30%)-Often referred to as a "credit utilization ratio," this is the percentage of a consumer's credit line that is borrowed against. For example, $3,000 of debt on a credit card with a $10,000 maximum limit results in a credit utilization ratio of 30%. To raise your credit score, the lower the credit utilization ratio percentage (e.g. 20% versus 40%), the better.

3.Length of Credit History-(15%)- Credit scoring models give more weight to people who have successfully used credit for long periods of time. To raise your credit score and/or keep it high, keep your oldest credit accounts open (even if they are used infrequently) and avoid opening lots of new accounts, which will lower your average account age.

4.Types of Credit Used (10%)-Credit scores increase when consumers have a mix of different types of credit (e.g., mortgage,home equity loan, car loan, and credit cards) instead of just one.

5. New Credit (10%)-Credit scoring models take points away from people who have applied for a number of new credit lines within a short time period (e.g., six months to a year).

So, if you thought your report card days were over, think again. Your credit score is a "snapshot" of your credit history at a particular point in time and you are constantly being "graded." Paying bills on time and not becoming overextended are the two best ways to raise your credit score and earn an "A."

Source: eXtension.org.

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