What Ruins Credit Scores? 5 Common Mistakes When Paying Bills

Here is a cool article on what you need to know about credit scores...
5 things you need to know from Janene Mascarella

1 - Nothing sends fear through the heart of a child more than report card day. Prepare yourself for a sense of déjà vu when applying for a loan ... many say the situation ignites that same blast-from-the past feeling as they await their financial fate. And what to do if, ultimately, that application is stamped "denied”? Figure that your credit score had a lot to do with it, and start making big changes.Now is the time to get savvy about your finances and credit standing -- being clueless about any aspect of your credit health can really cost you.

2 - Quite simply, your credit score summarizes your credit risk based on a snapshot of your credit standing at a particular point in time. It isn’t so much a grade, it’s more like a grade point average, explains Ken Clark, a debt/credit expert, certified financial planner, and author of 'The Complete Idiot's Guide to Getting Out of Debt.' Think of it as an overall assessment of your financial responsibility, one that influences the amount of credit available to you and the conditions you may have to agree to in order to get that credit.One major misconception, Clark says, is that people often confuse credit report with credit score. “A credit report is an objective history of who you’ve been as a borrower -- it passes no judgment,” says Clark. “The credit score is a subjective evaluation of that history.” Whether it’s a credit card, car loan, or mortgage, lenders want to know your level of risk, and how likely it is they’ll get paid on time.

3 - The terms “credit score,” “credit rating,” and “FICO score” are often used interchangeably, explains financial expert Ethan Ewing, president of Bills.com in San Mateo, Calif. “This is basically correct. FICO simply refers to Fair Isaac Corporation, the company that originally developed a ‘score’ method of rating consumers’ credit histories.”Today, the three major reporting agencies (Experian, Equifax, and TransUnion) each report their own credit scores. There’s the Plus Score, calculated by Experian; the Empirica Score, offered through TransUnion; and Equifax’s Beacon Score. And though lenders use different factors to rate your overall credit worthiness, says Ewing, “it basically comes down to whether you pay -- and pay on time -- and whether creditors have reason to believe you might be overextending yourself.” The more responsible you are with credit, the higher your score will be.

4 - While you won’t be quizzed on this later, you can earn some real-life “extra credit” (and lower payments) by studying the factors that drive your credit score. Doug deBruyn, a Seattle-area loan originator and certified mortgage planning specialist with VanDyk Mortgage, teaches a credit-scoring class for realtors and consumers, and shares his smarts to help you pass your next nerve-wracking credit test with flying colors. Sorry, there’s no “cramming” come loan-time. Click through the next slides to brush up on the five key components that factor into your credit score.

5 - Are you paying your bills as agreed? The most recent six months have the greatest impact on your score. The highest weight is placed on the highest payment. Usually, this is your mortgage, next would be a car payment, followed by student loan or credit card payments. Bankruptcies, judgments, liens, and collections/charge-offs will negatively impact your score, as will late payments. FYI: The severity of the delinquency is determined by the amount, how much time has passed, and the number of times you were late on an account. It could be 30, 60, or 90 days late.

Hope this helped you understand what can ruin your credit score.