How is my credit score determined?

By Amy Smith, Mortgage Planner

 

Credit scores are driving forces for nearly everything these days.  A low credit score may mean having to put a deposit down when opening utilities or not being able to obtain new credit for an auto loan, credit cards or a new home.  With a low credit score you can also count on higher rates on any new financing.  Here’s a breakdown of how your credit score is derived:

1. Payment History – 35% Impact – Paying debt on time and in full are positive marks on your credit report.  Late payments, collections and judgments all have a negative impact on your credit score.
2. Outstanding Credit Card Balances – 30% Impact – A high outstanding balance compared to the available credit can have a big impact on your score, especially if multiple accounts have balances that exceed 50% of the available credit.
3.   Credit History – 15% Impact – The longer you have credit the better your score. 
4. Type of Credit – 10% Impact – A mix of loans (auto, student, credit)  is always better than having a high concentration of one type of loan, especially credit cards
5. Inquiries – 10% Impact – This is based on how many people have pulled your credit in the last 12 months.  If you pull your own credit there is not an impact to your score.

There are quite a number of credit sites that will monitor your credit scores/report for you.  You can also access a free credit report from each bureau through www.annualcreditreport.com once a year.  For a more information on the points above you can click here. Feel free to also visit us online to try our mortgage calculators, request a copy of our insider's guide to credit scoring and home financing, request a copy of our  homebuyers guide or get started on your mortgage application!

The Magic Number: Does Your Credit Score Need To Be Above 800 To Apply For A Mortgage?

Over the course of a lifetime, financial development can lead to some wonderful opportunities. A person's financial development and state of affairs is something that is particularly important when it comes to taking out a bank loan to further progress in life, and the largest loan most people will require is a mortgage for a home purchase.

Since the process of getting approved for a mortgage is heavily dependent on credit history and that three-digit credit score that reflects reliability as a borrower, you should always put forth practices to keep that number healthy and growing.

However, how much importance does a credit score hold? Does that magic, three-digit number need to be above 800 in order to get approved for a mortgage?

The FICO Score: The Magic Number That Counts

When you apply for a mortgage, you will have to provide certain information to your financial institution or mortgage broker. The mortgage specialist at your bank or mortgage broker will then pull your credit score and your credit report.

Fair, Isaac and Company is the scorekeeper of your FICO score, which ranges from 300 to 850, 850 being the highest of all scores, and 300 being the lowest.

Every person in the United States has three FICO scores from the three different credit-reporting bureaus. Up to 80 percent of financial lenders will use a borrower's FICO score in order to approve a mortgage application and determine a suitable interest rate on the loan.

The 600 Range: Fair And Good Credit Mortgage Options

If your credit score isn't perfect (ie. above the 800 mark), you need not worry too much. There are many options available for those with credit scores around 600, and, with many different financial lenders to consider, having a mortgage approved sometimes means persisting with an application to several different lenders before receiving a "yes."

With a "fair" and "good" credit rating falling between 620 and 719, there are options available to get approved for a mortgage well under the perfect 800 mark.  An FHA loan is a type of mortgage loan that is insured by the US Federal Housing Administration, offering an option with more flexible qualification measures. For homebuyers with a credit score above 620, this is a viable and common option.

720 To Perfect: Under 800 And Still In Great Shape

The median credit score in the United States is 723, and anything above 720 is placed with the marker of "excellent credit." Therefore, just because you may range just slightly above 720, which may feel miles away from a perfect 800, you're likely in just as good of shape when it comes to getting approved for a mortgage. You can expect a mortgage approval with good interest rates if you have a credit score higher than 720.

Keeping an eye on your credit rating and understanding the measures that are used in determining your credit score will certainly help you maintain a good score. Of course, speaking with a professional and receiving expert advice is always recommended. For specified information on your particular situation, contact your mortgage professional to discuss your options for receiving a mortgage loan.