Credit scores arecomprised of five factors.
Points are awarded for each component, and a
high score is most favorable. The factors are listed below in order of
importance.
1. PAYMENT HISTORY - 35% IMPACT
Paying debt on time and in full has the greatest positive
impact on your credit score. Late payments, judgments and charge-offs
all have a negative impact. Delinquencies
that have occurred in the last two years carry more weight than older
items.When it comes to
collections, there is a general rule of thumb. Any collections within
two (2) years should be paid off. Any outside of 2 years should be left
alone. As stated before, your last two years history is the most
important. So anything outside of two years that is paid off will bring
it to a current status
and negatively impact your score.
2. OUTSTANDING CREDIT CARD BALANCES - 30% IMPACT
This factor marks the ratio between the outstanding balance and
available credit. Ideally, the consumer should make an effort to keep
balances as close to zero as possible, and definitely below 30% of the
available credit limit at least 2-3 months prior to trying to purchase
a home. If you have had some mistakes in the past, i.e. late payments,
collections, and are trying to repair your credit, it is important that
you use your credit cards often, but pay them off completely.
This will
help to establish new "good" credit.
3. CREDIT HISTORY - 15%
IMPACT
This portion of the credit score indicates the length of time since a
particular credit line was established. A seasoned borrower will always
be stronger in this area. Too often I run in to potential buyers that
had closed a credit card after they paid it off thinking it will help
their credit score. The opposite is actually in effect. You want to
keep your most established accounts, and if anything close newer
accounts.
4. 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. You should always have
1-2 open major credit card accounts.
5. INQUIRIES - 10% IMPACT
This percentage of the credit score quantifies the number of inquiries
made on a consumer's credit within a twelve-month period. Each hard,
i.e. auto loan, mortgage, credit card, inquiry can cost from two to 25
points on a credit score. Lower score clients will actually have a
larger decrease in credit scores by inquiries than a better score
borrower. Note:
When shopping for large ticket items such as an auto or a mortgage,
credit pulls from the same industry done within a couple of days will
not have as great of an impact as if you were to have your credit
pulled from a credit card company one day, and a auto dealer the next.
It is understood that you shop and therefor credit inquiries will be
made. The maximum number of inquiries that will reduce the score is
ten. In other words, 11 or more inquiries within a six to tweleve-month
period will have no further impact on the borrower's credit score. Note:
If you pull a credit report yourself, it will have no effect on your
score.
Remember that the credit score is a computerized calculation. Personal
factors are not taken into consideration when a credit report is
generated. It is merely a snapshot of today's credit profile for any
given borrower, and it can fluctuate dramatically within the course of
a week.
Joshua Lerette, The Tampa Bay Mortgage Pro is
available for all of your St. Petersburg, Florida mortgage needs.
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