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 There
are five factors that comprise the credit score. They are listed
below in order of importance, just as an underwriter would look
at the score:
- Payment History: 35% impact. Paying debt on time and
in full has a positive impact. Late payments, judgments and charge-offs
have a negative impact. Missing a high payment has a more severe
impact than missing a low payment. Delinquencies that have occurred
in the last two years carry more weight than older items.
- Outstanding Credit Balances: 30% impact. The ratio marking
the difference between the outstanding balance and the available
credit is important here. Ideally, the borrower should keep their
balances below 10% of available credit limits.
- Credit History: 15% impact. This marks the length of
time since a particular credit line was established. A seasoned
borrower is stronger in this area.
- Type of Credit: 10% impact. A mix of auto loans, credit
cards, and mortgages is more positive than a concentration of
debt from credit cards only.
- Inquiries: 10% impact. This quantifies the number of
inquiries that have been made on a borrower's credit history within
a six-month period. Each hard inquiry can cost from 2 to 50 points
on a credit score, but the maximum number of inquiries that will
reduce the score is 10. In other words, 11 or more inquiries in
a six-month period will have no further impact on the borrower's
credit score.
Remember, a computer that's not taking any personal
factors into consideration calculates these scores. When your credit
report is generated, it is simply today's snapshot of your credit
profile. This can fluctuate dramatically within the course of a
week, depending on your activities. When you enter the loan process
it's not in your best interest to go on a shopping spree as this
can create a negative impact on the score while the lender is reviewing
your file.
Lenders can compile a Tri-Merge Credit Report
which combines the scores provided by Fair-Isaac (FICO) with the
score generated by TransUnion (Empirica) and the Beacon Score produced
by Equifax. Lenders may do this because these three scoring systems
can vary in their results. The lender looks at the middle score
and throws out the other two. In many cases, this works to the borrower's
advantage.
[Dealing
with Credit Score Challenges] [Learn
About Credit Remediation]
[Good Credit Translates into
Lower Interest] [The Truth About Home
Appraisals] [Interest Rates]
[Mortgage Rates] [Return
to Articles page]
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Mortgage Master Service Corporation
24909 104th Ave. S.E., Suite 100,
Kent, WA 98030
Phone: 253-859-5300 Toll Free: 800-583-7200
Fax: 206-382-9612 (Seattle line)
Email:
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