Thinking about buying and concerned about how your credit rating may effect your ability to get a mortgage? I spoke with my colleague Craig J. Tashjian, Vice President of Fairway Independent Mortgage, and he shared the five factors that are combined to create your credit score. Check them out and start cleaning up any loose ends now so they don't become an obstacle later when you've found your dream home!
Payment History - 35% Paying debt on time and in full has a positive impact. Late payment, judgements and charge-offs have a negative impact.
Outstanding Credit Balances - 30% Debt ratio of outstanding balance to available credit is important. Keeping that below 50% is wise and below 30% is even wiser. It is never a good idea to close an account, the debt ratio will go up and the number of seasoned lines will decrease. Pay outstanding debt down as close to zero as possible and evenly redistribute the remaining balance among the open lines. Hitting the maximums of available credit can be very negative, it may be worth calling and asking the company to increase available credit to lower debt ratio, provided they can do so without a hard credit inquiry.
Credit History - 15% The length of time a particular credit line has been opened is important. A seasoned borrower is stronger.
Type of Credit - 10% A mix of auto loans, credit cards and mortgages is positive - rather than a concentration in credit cards only.
Inquiries - 10% Hard inquiries for credit will negatively impact the score. Auto and mortgage inquiries receive special treatment, and 20 inquiries can be made in a 14-day period and will be treated as only one inquiry. The maximum number of inquiries that will reduce the score is 10 - any beyond that (11+) in a six month period will have no further impact on the borrower. Each hard inquiry can cost 2-50 points on a credit score.
Learn more about how to improve your credit rating and explore home mortgage options on Craig's website.