Buying a Home
Understanding Your Credit Score

How Your Mortgage Credit Score Is Determined

Understanding Your Credit Score

Your credit score, also commonly called a FICO® Score, is an analysis of all your credit files that together represent how credit-worthy you are. When it comes to getting a mortgage, your credit score is incredibly important. It determines:

  • What loan programs you qualify for
  • Your interest rate
  • How much house you can afford
  • How much you’ll pay over the life of the loan

Here are the components of your score and how it’s calculated:

Payment History (35 percent of score)

  • Payment information on all your credit accounts
  • A lender’s primary concern is the timeliness of payments

Amounts Owed (30 percent of score)

  • Total amount owed on all credit accounts
  • Amount owed on individual credit accounts
  • How much of the total credit line is being used

Length of credit history (15 percent of score)

  • How long you’ve had an established credit history
  • How long each account has been established
  • How long since you’ve used certain accounts

New Credit & Inquiries (10 percent of score)

  • How many recent requests for credit you’ve had
  • Applying for too much credit in a short period of time can hurt your score

Types of Credit (10% of score)

  • Includes the total combination of credit cards, car loans, retail accounts, etc., in your name.

Most credit scores range from 300 to 850 – the higher the score, the better. Scores in the mid-600 range are considered acceptable – anything higher is good to excellent credit, which typically means lower interest rates and better terms. A score lower than 600 is deemed high risk, which may result in a loan with a higher interest rate and less favorable terms.

How You Can Improve Your Credit Score

If a low credit score is preventing you from a better mortgage rate, here are recommendations to boost your credit score:

  • Obtain your complete credit report from one of the three leading reporting agencies:
    • Experian
      • http://www.experian.com
      • 1-888-397-3742
    • Equifax
      • http://www.equifax.com
      • 1-800-685-1111
    • TransUnion
      • http://www.transunion.com
      • 1-800-888-4213
    • Review your credit report line-by-line searching for mistakes, omissions, duplications and “common name” errors.
    • If you find a discrepancy, contact the credit bureau. You’re able to add a 100-word commentary to reports on questioned items.
    • Set up payment reminders on your accounts to help avoid late payments.
    • Reduce your debt as much as possible and pay off any accounts you can.
    • Keep the balance on credit cards low.
    • Seek assistance from a credit counselor – they’re available through the credit bureaus and local government agencies.

Helpful Knowledge

  • Federal law requires credit bureaus to contact all creditors on items where mistakes were made. According to the Fair Credit Reporting Act of 1971, if a firm fails to respond to you in writing within 30 days, they’re obligated to remove disputed items from your records.
  • The Fair Isaac Resolution Resources Helpline is phone number is 1-800-777-2066.
  • Most merchants are willing to negotiate customized repayment plans for people with considerable debt.
  • Chapter 13 bankruptcies stay on an individual’s record for seven years.
  • Chapter 7 bankruptcies stay on an individual’s record for ten years.

Liens, Garnishments And Judgments

Liens, garnishments and judgments can indicate an unstable borrower. It’s important to pay off your liens, including tax liens, in full prior to closing or, better yet, before applying for your loan. Standard property tax liens don’t have to be recorded as paid in full because they’re not yet due or payable. Be prepared to provide your lender with receipts showing anything outstanding paid off or letter with a satisfactory explanation describing why they remain outstanding.

Delinquent Child Support

Outstanding child support payments must prove to be brought current – there are no exceptions. A letter from an ex-spouse, copies of personal checks or proof of an incomplete payment plan are all deemed unacceptable. Because of the serious nature of delinquency/default, only a letter from the court or legal authority responsible for collection of the payments in the city/state (e.g. district attorney, sheriff, etc.) is acceptable.

If you’re ready to learn more contact us online or call 800-317-7463 and we’ll explain everything.

Written By Mandy Jordan