New Homeowner's guide to understanding your credit

  WHAT MAKES UP A CREDIT SCORE?

•·      Payment History                   35%

•·      Balances Carried                   20%

•·      Credit History                     15%

•·      Mix Of Accounts                   10%

•·      Inquiries                            10%

PAYMENT HISTORY - 35%

Having a long history making of payments on time and no missed payments on all credit accounts is one of the most important items lenders look for.

•·      Bills Paid As Agreed

•·      Most Recent 6 Months

•·      Most Weight On Highest Dollar Amount ie: Mortgages & Other Large Loans

BALANCES CARRIED -30%

This measures the amount you owe relative to the total amount of credit available. Someone closer to maxing out all their credit limits is deemed to be a higher risk of late payments in the future and this can lower their credit score.

•·        Keep Balances As Low As Possible

•·         Outstanding Balances Versus Credit Limit Affects Credit Score

For Example:

Credit Card              Balance                   Credit Limit

Visa                       $10,000                  $10,000 (Bad)

Visa                       $0                        $10,000 (Great)

•·        High Credit Limit to Balance Ratio = Lower Credit Score

•·        Spreading Balances Between Cards  = Higher Credit Score

•·        Try To Keep Ratio Under 50%

•·        Mortgage / Installment Loans Less Of Factor

CREDIT HISTORY - 15%

In general, a credit report containing a list of accounts opened for a long time will help your credit score. The score considers your oldest account and the average age of all accounts.

•·       Longer Credit History = Higher Credit Score

•·       Long Credit History Paid As Agreed / Positive Impact To Credit Score

•·       Never Close Credit Accounts, Especially If You've Had A Long History

MIX OF ACCOUNTS - 10%

Your mix of credit cards, retail accounts, finance company loans and mortgage loans is considered.

•·       Ideal To Have Installment & Revolving Accounts

•·       Mortgage Loan

•·       Auto Loan

•·       3 - 5 Credit Cards are OK

•·       HELOC Should Be Greater Than $40K Or Will Report As Revolving Account Versus Mortgage

INQUIRIES - 10%

Opening several new credit accounts in a short period of time can lower your credit score. Also multiple credit report inquiries can represent a greater risk, but this does NOT include any requests made by you, an employer or by a lender who does so when sending you an unsolicited, "pre-approved" credit offer. Also, to compensate for rate shopping, the score counts multiple inquiries in any 14-day period as just one inquiry.

•·      Shopping Around? Pulling Multiple Reports For Mortgage and Auto Purchases = 1 Inquiry Within 14 days (for each).

• Each Inquiry Averages 5 Points
• Only First 10 Inquiries Count Each Year
• After 10, Will Not Affect Credit