About Your Credit Score:

Credit score has a big influence on a mortgage and determines not only whether or not a borrower qualifies for a particular loan program, but also influences the long term cost of the loan.

A FICO score can range anywhere from 300 to 850, the score is determined by 5 factors, which are weighted as shown below:

  • Payment History - Payment history reflects whether your debts have been paid on time. If you have 30 day lates, collections, bankruptcies or judgements, you’ll see a significant drop in your FICO score.

  • Amounts Owed - This is based on the amount your owe versus the credit available to you, typically 40% of the available balances is a good rule-of-thumb to follow.

  • Length of Credit History - The length of your credit history will take into account the age of your oldest account and average age of all your accounts, as well as how long it has been since you have used certain accounts. If you are in the loan process, you should ALWAYS ask your loan officer before closing any account because doing so may affect the length of your credit history.

  • Types of Credit in Use - Variation in the types of loans (auto loans, home loans, retail accounts, credit cards) can help your score as it indicates that you have experience in borrowing money.

  • New Credit - Opening multiple credit accounts or having multiple inquiries during a short period of time can negatively impact your score. However, inquiries have a relatively small impact and the scoring model allows for “rate shopping” over a short period of time, such as when shopping for a car or home loan.

Accessing Your Credit Report:

Federal law requires that Equifax, Experian and TransUnion, the three nationwide consumer credit reporting companies provide a free credit report to you once every 12 months if you request it. You can request your report at Review your report carefully for errors such as debts or accounts that you do not recognize, an address you did not live at, an employer you did not work for or inaccurately reported late payments or collections. If you find errors on your report, you can dispute them with the credit bureau (if you are currently in the process of getting a loan, talk to your loan officer before filing any disputes)

Establishing Credit:

Obviously paying your bills on time and keeping your account balances to a reasonable limit are a fantastic approach to building or rebuilding a good credit score, but don’t overlook other factors that will affect your ability to get a mortgage. Maintaining things that don’t show up on your credit report, such as utility payments and checking and savings accounts, are also important and will be looked at during the loan process.

If you are just starting out there are a few options for building your credit history: taking out a small personal loan from a bank or credit card, obtaining a secured credit card or opening and maintaining an unsecured credit card account are a great place to start. Be cautious of applying for too much credit at once, this will cause multiple inquiries and the average age of the credit will be reduced.

Rebuilding credit that has negative history on it can take longer than establishing new credit, but it is worth the time and effort. Focus on reducing your balances to the 40% goal range, making all your payments on time and demonstrating a responsible pattern of behavior with your credit and you will see the results in your score.