Credit Score Broken Down~What a homebuyer needs to know

By
Real Estate Agent with RE/MAX Professional Associates

 

I was talking to a mortgage broker friend, Kathy Towers from Reliant Mortgage about credit scores and what factors effect it.  She shared these five factors:

 

  • Payment History: 35% impact. Paying debt on time and in full has a positive impact. Late payments, judgments 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 last 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, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of 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 a consumer's 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 the borrower's credit score.

I had not seen it laid out quite like this before, and found this very helpful.  Bottom line pay things on time, don't carry too much debt, show history, keep a healty balance, and don't apply for too many new accounts.

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Rainmaker
1,287,307
John Pusa
Sellstate Pacific Realty - Glendale, CA
Your All Time Realtor With Exceptional Service

Pam - Thank you for the detailed quality information about what home owner need to know on credit score.

Jul 19, 2011 12:02 AM #1
Rainmaker
1,161,041
Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

Hi Pam - Fair Issac is a fickle fiend for a lot of people.

Jul 19, 2011 06:37 AM #2
Rainer
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Marge Piwowarski
Phoenix AZ Horse Property - Phoenix, AZ
Phoenix AZ Horse Property, LLC
Good info for first time buyers! Better info for students, wouldn't it be great if credit management was included in basic education?
Jul 19, 2011 01:06 PM #3
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Rainmaker
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Pam Crawford

Owner-RE/MAX Prof. Assoc.,MBA, CDPE, CRS, ABR
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