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Did you know this about your credit?



Credit scores are used to assess risk and determine whether a borrower is approved or declined for a mortgage, credit card or some other type of credit.  The score is a numerical value ranging from a low of zero to a high of 850 or 900 depending on the credit bureau.

The higher the score, the more likely the lender will be repaid in a timely manner.

  1. A higher credit score could help you get a lower interest rate
  2. You can get a free credit report from all three major bureaus at www.AnnualCreditReport.com.
  3. Your credit score doesn't have to be perfect to get a loan ... most lenders want buyers to have a minimum of 620 but FHA will consider as low as 500
  4. Credit utilization, the percentage of credit used compared to what is available, should be kept below 30%; amounts higher could negatively affect your credit score.
  5. There is a difference between a soft and a hard credit pull.  The former doesn't hurt your score, but the latter can lower it a few points.  Try to avoid multiple hard inquiries.
  6. Credit cards, bank loans, car loans and home loans are considered "good credit" and a mixture of different types is helpful compared to only a car loan.
  7. Opening new credit accounts after you apply for a mortgage can hurt or even prevent you from being approved on the mortgage.

There are five components to making up a credit score.  35% of the weighted average is determined by payment history like paying on time.  The next highest item is the amount owed and counts for 30% of your score.  This component deals with credit utilization which is expressed as a percentage of what you owe divided by what is available.

The length of time you have had credit established accounts for 15% of the score.  New credit and the types of credit accounts are weighted at 10% each.  Opening several accounts in a relatively close period will negatively affect your score.  While it isn't necessary to have all types of credit like credit cards, installment loans, finance company accounts and mortgage loans, the types of credit in the mix are evaluated.

If you need help increasing your score, a trusted lender that provides your pre-approval can also make suggestions that would improve your credit.  Contact your real estate professional to get a personal recommendation of a trusted mortgage lender.

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