Credit Scores: Important
When applying for a mortgage the first thing your Loan Officer will look at is your credit report. By pulling all three bureaus, Experian, Equifax and TransUnion, We can determine your level of risk and your interest rate along with the likely hood of getting you a mortgage loan. At this time the minimum credit score to obtain a mortgage is a 620.
It is a good idea to check your own credit report at least once a year with all three bureaus. Estimates have shown that 75% of all consumers have some type of inaccuracy on their credit report. You may do this by going to Experian, TransUnion and Equifax websites.
What Factors Determine a Credit Score?
- 35% is your Payment History
- 30% Amounts Owed
- 15% Length of Credit History
- 10% New Credit
- 10% The Way Your Credit is Used
1. Payment History:
Your Payment History is a major factor in determining your credit score. Delinquent accounts make up the majority of poor credit and the more recent the derogatory the more impact on your score. A current 30 day late is worse than a 60 or 90 day late 2 years ago. Collection accounts are also common and bring down your score, however please discuss paying off any Collection with your loan officer, as doing so may result in a lower score. This may seem backwards but what happens is your collections last activity date becomes the day you pay it off which makes the account look more recent.
2. Amounts Owed
The Amount owed is also a large factor in determining scores, the lower the balance is to your limit the higher your score. There are many times when I have had a borrower pay down their credit cards in order to increase their scores. Do not close credit cards that have a good pay history, this can have a negative impact on your credit. Have 3-5 credit cards with low balances rather than 2 credit cards that are “maxed out” again, this is a great way to better your score by keeping the balances low to the limit.
3. Length of Credit History
The basic rule here is the longer the history, the better. This goes back to not closing long standing accounts.
4. The Way Credit is Used
All balances on revolving accounts (ie. credit cards) should be 10% lower than the limit, ideally. Remember that on Joint user accounts both parties are responsible and regardless of who is using the card or cards, it will reflect on both credit reports.
5. New Credit
New credit will temporarily decrease your score for a month until unrated status goes away. It is best to have a good mixture of credit such as a mortgage, car note, and 3-5 credit cards. Please talk to your loan officer before opening any new accounts, as this could effect your credit score which will also effect getting approved for a mortgage loan.
