Factors Affecting a Credit Score

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Would the high balance available (credit line available) work against me by hurting my credit score?

I am considering getting the maximum equity line of credit the bank will allow, which is up to 80% LTV and could be $600,000 to $700,000. Most likely...

I am considering getting the maximum equity line of credit the bank will allow, which is up to 80% LTV and could be $600,000 to $700,000. Most likely I will never use more than $300,000 of the balance but thought it could be helpful to have. Would the high balance available work against me by hurting my credit score?

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  • Credit score is based on five factors.
  • Payment history has the biggest influence on a credit score.
  • Total debt and available credit are the second largest factors.

First, it is important to understand how your credit score is calculated. I will discuss credit score calculations in general, and then address your question.

Your credit rating is calculated based on several variables, including:

1) Payment history, which counts for approximately 35% of your score, is the most heavily weighted factor used in calculating your credit score. Consistently paying your bills on time has a positive influence on your score, while late or missed payments will hurt you in this area. If you have delinquent payments, the older the delinquency the less the negative impact on your score will be. Collection accounts and bankruptcy filings are also taken into consideration when analyzing your payment history.

2) Total debt and total available credit, which counts for about 30%. This section looks at how much debt you have compared to the total available credit on your accounts. If all of your accounts are maxed out, you will be considered a poor credit risk, because it appears that you are struggling to pay off the debt you have already incurred. If your account balances are relatively low compared to your available credit, this part of the risk analysis should help your overall credit score. The score calculation also looks at these two factors independently. Having too much available credit, whether you have used it or not, could hurt your credit score, as statistical studies have shown that people with excessive amounts of available credit are a higher credit risk. Unfortunately, the bureaus do not define exactly what they consider excessive, so best tip is to use credit conservatively and to keep your debt to credit limit ratio low.

3) Length of positive credit history, which counts for about 15%. The longer you maintain accounts in good standing, the better your score will be. This shows that you are able to make a long-term commitment to a creditor and are consistently responsible about making your payments.

4) Mix of types of credit, which counts for approximately 10%. Having several different types of credit, such a credit cards, consumer loans, and secured debt, will have a positive influence on your credit score. Having too much of one type of credit can have a negative impact.

5) Number of new credit applications you completed recently, which accounts for about 10% of your score. Applying for too much new credit in a short time period makes indicates that you could be credit risk, as you may be desperately trying to keep your head above water. The models make an exception for people who are shopping around for a loan, so if you are simply applying to see who can give you the best rate on a new loan, you need not worry too much about damaging your credit score.

Your Question

As you can see that total debt in comparison to the total credit available has a weight of about 30% on your overall score. As you intend to use only a portion of the total available credit, it should not influence your score to that great an extent.

Although you cannot realistically calculate your own credit score, you can review your credit report for on the five factors I named above to get an idea of whether the accounts listed on your credit report are hurting or helping your credit score. You can then take action to improve any potential problems, such as paying down your balances or paying off collection items.

Also, factors such as age, sex, income, and length of employment, have no direct affect on your credit score, and are not considered when the bureaus calculate your score. Keep in mind that for most lenders, your credit score is only one aspect, albeit an important one, of your overall “credit worthiness,” meaning the creditor’s view of your ability to repay a loan. Your income, for example, is not considered in the calculation of your FICO score, but most lenders will ask you what you earn to analyze your ability to repay the loan. Even if you have an 800 FICO score, if your income is only $10,000/year, a lender will probably not loan you a large sum of money, because despite your past credit habits as measured by your FICO score, the lender can see that you probably cannot afford to repay the loan.

If you would like to learn more about credit reports, credit scoring, and what it means to you, I encourage you to explore the wealth of material offered by Bills.com.

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  • ,
    Mar, 2019

    I just had a past due collections appear on my credit report from 5 years ago. I knew nothing about it. I called the credit collections company and paid the debt. I don't want it to appear on my report. I called the collections company and they said “no” that’s up to credit bureau. I just called Transunion again and they said it was no longer on report. Experian won’t answer their phone so went online, but all my effort to correct this was unsuccessful. I need to have this removed from my report, fast. I am worried about qualifying for a mortgage. What is your advice?

    • 35x35
      Mar, 2019

      Good news. The presence of the collection account on your Experian credit report should not be a barrier to qualifying for a mortgage. I understand that it only recently appeared, but a collections account that is 5 years old should not hit your score too hard and the fact that you can show that it is paid and you no longer owe the debt will make its presence a non-issue for the underwriter who views your loan application. Be sure you can supply written proof from the collection agency that the debt is at $0 and the matter closed. In another two years, the derogatory account should fall off of any bureau that reports it.

  • CG
    Norcross, GA,
    Feb, 2011
    I enjoyed reading this answer concerning high credit line balances. This answer targeted exactly what I was searching for regarding my credit lines.
    • DT
      Lyman, NE,
      Sep, 2011
      Mine too. Perfect.