What Makes Up A Credit Score?
If you’re hunting for a home mortgage, you probably know that your credit score is an important component of the mortgage approval process. In most cases, the higher your credit score is, the lower the interest rate on the mortgage. How exactly is this score calculated? We’ve broken down the key factors that impact your credit score below:
1. PAYMENT HISTORY (35%)
Pay.Your.Bills.On.Time. This is important – every 30 days late, collection, judgment, or bankruptcy significantly drops your score.
2. AMOUNT YOU OWE COMPARED TO BALANCES (30%)
This is how much total debt you have vs. how much credit is available. A good rule-of-thumb: be at 40% or less of the available balances.
3. LENGTH OF CREDIT HISTORY (15%)
In general, the longer your accounts are open, the more positive impact it will have on your credit score.
4. CREDIT MIX (10%)
Diversify your credit. If you have loans, such as a car loan, along with open credit cards, this helps prove to creditors that you have experience borrowing money.
5. NEW CREDIT APPLICATIONS (10%)
There is a model that compensates for people shopping rates on home and car loans, but it can hurt your credit score to have multiple reports pulled in a short amount of time. Keep your applications for new credit cards to a minimum.
I’m Not Happy With My Credit Score – Is There Anything That I Can Do To Change It?
If you’re worried about your credit score, it is possible to raise it over time by taking positive actions. Pay off debt, selectively apply for new credit cards, and pay bills in a timely manner may help you achieve a mortgage-ready credit score. Learn how we can help you at vandykmortgage.com.