What Makes Up Your Credit Score

There are five factors that comprise your credit score. They are listed below in order of importance, just as an underwriter would look at the score:

• Payment History: 35% impact. Paying debt on time and in full has a positive impact. Late payments, judgements and charge-offs have a negative impact. Missing a high payment has a more severe impact than missing a low payment. Delinquencies that have occurred in the past two years carry more weight than older items.

• Outstanding Credit Balances: 30% impact. This factor marks the ratio between the outstanding balance and available credit. Ideally, you should make an effort to keep balances as close to zero as possible, and definitely 30% below the available credit limit when trying to purchase a home

• Credit History: 15% impact. This marks the length of time since a particular credit line was established. A seasoned borrower is stronger in this area

• 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.

• Inquiries: 10% impact. This quantifies the number of inquiries that have been made on your credit history within a six-month period. Each hard inquiry can cost from 2 to 50 points on a credit score, but the maximum number of inquiries that will reduce the score is 10. In other words, 11 or more inquiries in a six-month period will have no further impact on your credit score. New guidelines state that three credit checks within 30 days will not negatively impact credit scores.

Remember, a computer that’s not taking any personal factors into consideration calculates these scores. When a credit report is generated, it is simply today’s snapshot of the your credit profile. This can fluctuate dramatically within the course of a week, depending on your own activities. Do not open any new credit cards and do not go on a shopping spree. You need to make sure you do nothing to your credit that will send up red flags to the underwriter and create a negative impact on your file.

Secondly, it is beneficial to compile a Tri-Merge Credit Report. This combines the scores provided by Fair Isaac (Fico) with the scores by TransUnion (Empirica) and the Beacon Score by Equifax. The lender is going to look at the middle score and through out the other two. In many cases this works to the borrow’s advantage.

TransUnion- Free annual credit report or 877-322-8228
To dispute an item on your report: 800-916-8800

Equifax: 800-685-1111
To dispute an item on your report: Click here

Fair Isaac 800-319-4433

Remember, now more than ever, your credit report will affect the amount of interest you pay for a home, a car loan, your automobile insurance and it can influence your future employment. Many employers are pulling credit reports to determine if a you would make a good employee. They feel it shows your true character.