Understanding your Credit Score
When applying for a mortgage one of the top determining factors on programs and your interest rate is going to be your fico score.
We pull your credit from the following credit bureaus:
Credit Reporting Agency |
FICO® Score |
Equifax |
BEACON® |
Experian |
Experian/Fair Isaac Risk Model |
TransUnion |
EMPIRICA® |
Each bureau has a scoring model that will evaluate you credit that is being and evaluation of your score at that particular moment in time. Credit scores can and typically do change from month to month pending upon if you are paying down/off credit cards, plus the length of time on credit seasons giving you higher scores. Each reporting bureau has different scores because not all creditors report to all three bureaus and each using a different scoring model.
How Credit is Weighed:
These percentages are based on the level of importance in five categories for the general population.
Payment History
- Late payments make an extremely derogatory mark on your credit score. As they age the derogatory effect against your credit become less of an impact.
- Collections, Public Records, Judgments
- Paid as agreed
Amounts Owed
- Is there a limit reported on your credit (this can hurt your score because in some cases the high or current balance is considered the limit and therefore showing the card is maxed out.)
- Credit does not see dollars it goes off of ratios. This is important when dealing with revolving lines of credit. (example: credit cards are consider revolving) Thus meaning that if you have a card maxed out or close to the limit, you are considered living beyond your means.
- On installment accounts, it looks at proportion of still owning to the original loan amount. Example of an installment account would be an unsecured personal loan or an auto loan.
Length of Credit History
- Time since account has been opened. (the longer the trade line has been opened, the more impact the trade line has on your credit)
- The type of account makes difference. Credit Cards different from Auto Loans and same applies towards personal installment loans. (We recommend anytime you are applying for a mortgage do not apply for any other credit under no circumstances)
- Time since last activity. You should use credit and pay it off immediately. If you do not use the cards or line of credit, the trade line becomes inactive and no longer helps your credit scores.
New Credit
- Number of recently opened accounts and type of accounts
- Credit Inquiries can and will drop your credit score. When applying for a mortgage, do not apply for credit, not only will the new trade line of credit affect your score adversely, but the inquiry will drop your score. This can make a difference on what you are qualified for.
- Establishing new positive credit will help with past payment problems
Types of Credit Used
- Retail Credit Cards
- Credit Cards
- Installment loans
- Mortgages
- Consumer finance accounts
The proper mix of credit is essential to having high credit scores. Too many of any type of credit can cause a negative impact on your credit. We recommend that you look at the mix of credit you have.
When looking at your credit score, there are hints on the report that will help you understand what is potentially holding your score back. Example would be the following:
Credit Scores |
| Applicants name here |
760 |
XPN FairIsaac |
| |
10 Proportion of balance to high credit on bank revolving or all revolving accounts |
| |
14 Length of time accounts have been established |
| |
6 Number of finance company accounts |
| |
5 Number of accounts with balances |
Credit Scores |
| Applicants name here |
761 |
TU FICORiskScoreClassic04 |
| |
10 Proportion of balances to credit limits is too high on bank revolving or other revolving accounts |
| |
30 Time since most recent account opening is too short |
| |
12 Length of time revolving accounts have been established |
| |
11 Amount owed on revolving accounts is too high |
Credit Scores |
| Applicants name here |
750 |
EFX FACTABeacon5.0 |
| |
10 Proportion of balances to credit limits is too high on bank revolving or other revolving accounts |
| |
30 Time since most recent account opening is too short |
| |
11 Amount owed on revolving accounts is too high |
| |
12 Length of time revolving accounts have been established |
Some of the hints are indentical between the differnt credit bureaus, those would be the ones to look at first giving the most embhasis on.
Other things to look at would be the summary of the credit report which looks like this
| Total Number of Trades |
19 |
Total Number of Delinquent Trades |
0 |
| Total Revolving Accounts Monthly Payment |
$487 |
Total Installment Accounts Monthly Payment |
$1,621 |
| Total Number of Open Trades |
5 |
Date of Oldest Account |
10/1992 |
| Total Number of Trades with Current Balance |
3 |
Total Number of Public Records |
0 |
| Total Revolving Account Balance |
$57,079 |
Total Number of Inquiries Last 90 Days |
1 |
| Total Installment Account Balance |
$206,559 |
|
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By viewing the snap shot of the summary that will help you get a better understanding of your credit. To get the full facts, have your mortgage professional review your credit with you. We take pride in being experienced with credit and how to help you acheive higher credit scores.
Getting a Free Copy of your Credit Report
Visit www.AnnualCreditReport.com for a free copy of what is on your credit report. Remember though, the scores on the report should you deciede to purchase scores, is not what we will use. The scoring model is differnt. But we do recommend that you view it and see exactly what is on your credit. ALSO: You can dispute items on your credit report their via online. We recommend that you dispute any and all degorotary items regardless of being accurate or not. All it takes is for the reporting creditor to be lazy and not reply to the dispute and the item is removed. This has helped many people raise their scores.
Collections:
If you have collections, prior to paying them, creditors are wanting their money. Negotiate getting a deletion letter. Some items maybe for simple reasons such as a medical insurance claim and the co-payment was never resolved, or you moved and the last bills were never forwarded to you and paid. Most cases these items can easily be removed by calling the collection agency and agreeing to pay them in full and asking for a letter of deletion. They will only issue letters should you pay the collection, besure to document whom you spoke with, date and time and followup.
Just by disputing and negotiating, we have taking individuals with credit scores at 520 to a 640 within two short months enabling them to purchase a home and getting a much better interest rate.
Idenity Theft
Should you incure idenity theft, we recommend you visit the Federal Trade Commissions website specific to Idenity Theft. There are also services on annual credit report.com that can help protect you from receiving identity theft.
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