Your financial reputation starts the day you are born with a social security number. Over years of saving and spending you build that reputation to showcase your fiscal responsibility to lenders. This is presented to potential creditors in a numerical form which showcases your financial risk and repayment capabilities. This number is a fluid piece of your personal information, adjusting with your incoming and outgoing financial endeavors.
There are five pinnacle pieces to your financial reputation, and at Peoples Bank & Trust we want to help you make the most of them!
35% – Payment History: This is the primary part of your financial reputation, which lays out your repayment patterns on various past and current debts. This can be anything from paying off your credit card each month, to keeping current on your mortgage payments. Companies that score your risk and liability potential take this into account first when determining your lending potential.
30% – Amounts Owed: This portion of your reputation is comprised of how much you owe on things such as your mortgage, credit cards, car payments, etc. There are certain areas of debt that are considered good, such as up kept loan payments, and other bad debt such as high credit card balances. By decreasing your bad debt and continuing to pay down your good debt, you can improve this important factor.
15% – Length of Credit History: This factor is simply how long you have been an established creditor. The longer your credit history, the more long-term habits can be observed. While this benefits those who have a well-rounded history, it makes it impossible for a new users to have a perfect financial reputation.
10% – Credit Diversity: This smaller portion of your financial reputation indicates the capacity you have for handling multiple types of repayment. If you pay down credit cards while staying current on your car loan installments and mortgage this shows that you are capable of managing more than one type of debt.
10% – New Credit: This final portion showcases your continuous use of credit through your personal finances. Occasionally having a new source of debt can be a positive thing to show that you haven’t paused your use of credit. However, applying to multiple credit cards within a short time period can raise a flag, potentially indicating financial trouble.
If you’re looking to improve your financial reputation there are three important things you can do!
- The best way to get started is to check your FICO score, and check it often. The best offense is a good defense, and knowing what obstacles are in front of you will help you prepare your best plan of action.
- Once you have this information in front of you, you can see where you still owe various debts. To help remind yourself when different bills are due, set alarms on your calendar to notify payment dates to assist you in staying current!
- The last and most effective thing you can do is to reduce the amount you owe. If you have a large amount of outstanding debt on various credit cards, paying them down can significantly affect how potential creditors see your lending potential.
If you have questions on how to get started, or what your next steps might be, drop us a line! We’re excited to help you get on the path to a successful financial reputation.
Peoples Bank & Trust Co.
Equal Housing Lender
Member FDIC