What you ought to know (#5)...
What makes up and affects my credit score?
Credit scoring balances and weighs positive and negative information, then compares that information to a statistical norm, to determine what factors are most predictive of future credit performance. The variables that are evaluated are:
- Payment history (approximately 35% of the score) ? the biggest impact on score is whether past payments have been on time, or 30,60,or 90 days late, or worse yet3;any collections that may have been issued on past or current accounts.
- Amounts owed (approximately 30%) ? having credit accounts and maxing out your credit limits, might imply that a borrower is over extended. Try to keep your balances below 50% of the credit limit.
- Length of credit history (approximately 15%) ? the longer the better. Lenders want to see that borrowers are able to responsibly manage their money.
- New credit (approximately 10%) ? if you´ve recently opened a number of new credit accounts in a short period, this might indicate a greater risk to the lender.
- Types of credit used (approximately 10%) ? this evaluates the types of credit the borrower has: credit cards, auto payments, mortgages. While it is good to have a mix, it is not necessary, and borrowers should not open accounts that they don´t need.
The credit report also shows the number of inquiries over the previous two years. A borrower who has been shopping for a new car may have numerous credit inquiries on their report. This might be an alert to the home loan lender, that the borrower is getting ready to incur more debt, elevating the risk of repayment.
Bottom-line, if your client has questions about their credit, or don´t even know what their score is, you should have them talk with Arrowhead Home Loans