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How Your Credit Score is Determined - The Bills.com Blog
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How Your Credit Score is Determined
Monday, Aug 20, 2007
Question: I have a friend that say's he does not want to owe anyone anything. He doesn't have any loans, credit cars, and nothing is financed. He said that he will pay cash for everything. Is it possible for him to have good credit with no credit? He thinks that he can have good credit just by paying his bills( utility and rent)on time. Is that possible?
Answer: The simple answer to your question is no, you cannot establish a good credit history simply by paying your rent and utility bills on time. In order to build a positive credit history, and thus establish and maintain a good credit score, you must open, use, and timely pay credit accounts that regularly report to the three major credit bureaus (Equifax, Experian, and TransUnion).Accounts that should help you build your credit rating by reporting positive payment information to the credit bureaus include auto loans, home mortgages, credit cards, and personal loans. A person with no credit accounts, like the friend you describe in your question, would have neither a negative nor a positive credit history; rather, he would have no established credit history (frequently called a "thin-file" consumer), which would make lenders hesitant to loan him money as they would have no information to judge his credit risk. From a lender’s point of view, having no credit is similar to having bad credit, as lenders generally do not want to lend money to someone who has no past history of
paying his creditors on time.
Thankfully for consumers with no established credit, it is generally much easier for them to establish a good credit history than consumers with past credit problems. Consumers with negative credit listings, such delinquent accounts, must establish new positive credit lines to try to counterbalance the negative impact of their delinquent items. However, consumers with no established credit history do not have any negative listings weighing down their credit score, so opening credit accounts and making their payments timely should build a positive in a relatively short amount of time. And the longer they make their payments on time, the more their credit ratings should improve.
Your credit rating is calculated based on several variables, including your payment history (do you have any late payments, charge-offs, etc.), the amount and type of debt that you owe, if you have maxed out any of your trade lines, and then several other secondary factors like the length of your credit history and how many recent inquiries have been
Thankfully for consumers with no established credit, it is generally much easier for them to establish a good credit history than consumers with past credit problems. Consumers with negative credit listings, such delinquent accounts, must establish new positive credit lines to try to counterbalance the negative impact of their delinquent items. However, consumers with no established credit history do not have any negative listings weighing down their credit score, so opening credit accounts and making their payments timely should build a positive in a relatively short amount of time. And the longer they make their payments on time, the more their credit ratings should improve.
Your credit rating is calculated based on several variables, including your payment history (do you have any late payments, charge-offs, etc.), the amount and type of debt that you owe, if you have maxed out any of your trade lines, and then several other secondary factors like the length of your credit history and how many recent inquiries have been
made to look at your credit history. Since your past payment history accounts for approximately 35% of your FICO credit score, establishing a good payment history with your creditors is essential to building and maintaining a good credit rating.
To learn more about credit, credit reports and credit scores, I encourage you to visit the Bills.com Credit Resources page at http://www.bills.com/credit/
I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
To learn more about credit, watch this great new video from Bills.com Founder Brad Stroh:
To learn more about credit, credit reports and credit scores, I encourage you to visit the Bills.com Credit Resources page at http://www.bills.com/credit/
I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
To learn more about credit, watch this great new video from Bills.com Founder Brad Stroh:
Also, make sure to get a free financial health check-up with Bills IQ!
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Bill has answered all sorts of questions and has been able to provide those in need of financial guidance with helpful and valuable advice and information on their specific financial area of interest. If you need specific guidance on any of the above mentioned financial areas, feel free to Ask Bill your financial questions and get better informed. Also, make sure to get a free financial health check-up with Bills IQ!
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