Credit Scoring

How are credit scores determined? What is the highest credit score possible? What credit score do I need for a mortgage? Why do I have three different credit scores? What do my credit scores mean? These questions are all very common questions regarding credit scoring. Read through this web-page and you will discover the answers to the above questions and many more. Your credit score is based on a number of different variables such as your payment history, your credit utilization, variety of credit, number of credit inquiries within a certain period of time, length of your credit history and the amount of credit you have available to you.

There are three different credit report bureaus. They are Trans Union, Equifax and Experian. Each bureau will report a score based and many variables. If you have a limited credit history you may not have three scores, you may only have one or two.

When applying for a mortgage, credit scores are one of the main factors that will be used to determine your eligibility for various loan programs. The higher your score, the more options you will have.

You wouldn’t believe how common it is! The biggest credit mistake that most of us make is closing our old paid off credit cards. I know that is seems like the right thing to do when you pay off the balance but 15% of your FICO score is made up of your credit history. If you close a credit card with no current balance that you’ve had for years, you are getting rid of a lot of your credit history.

If you have a minimum of 20% to 25% equity in your property, in certain cases we can approve you for a loan with no credit scoring based solely on your good mortgage payment history and liquid financial reserves.

Many loan programs have rate adjustments for lower credit ratings. There are some loan programs, such as FHA loans, which are not credit score sensitive but rather look at your overall credit picture.

The most important factor in determining your credit score is your payment history. Nothing hurts your credit more than making late payments on any of your debt. It is suggested that if you are used to paying off all your credit cards each month but have fallen on hard times, then it is better to make the minimum payment on each card than to make one late payment.

You should review your credit report at least once a year to ensure there is no erroneous information on it. Credit bureaus are required by law to issue you one free credit report each year upon request. In order to obtain this report, simply request it in writing from the credit bureau.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (hence the initals FICO). Your FICO score is between 350 (high risk) and 850 (low risk).

Many banks allow loan applicants with perfect credit history and high credit scores the convenience of furnishing less or even no income and asset documents such as tax returns and bank account statements. Such conveniences are not offered to home buyers with low credit scores without penalizing them with higher interest rates.

Lenders view your credit report as your financial report card. It tells them your ability to pay back a loan on a timely manner. Review your report annually to correct errors.

The three credit bureaus use a credit, or FICO score, as a general estimate of your ability to repay a loan. Lenders will consider the FICO score in determining the interest rate to charge you. To improve your credit score make your payments on time. Also pay down your credit balances. Contact a mortgage broker for more information on improving your credit score.

» DISCLAIMER: The information contained in this article on 'Credit Scoring' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.