Mortgage Credit Score Requirements

Basics on Cape Cod Credit Score Requirements

Lender’s look at a borrower’s credit score, number of open accounts, payment history, type of credit borrowed and a series of other factors when determining what level of risk to assess to each lending scenario. There are many key factors that come into play.

Key Factors Can Impact Your Score:

1. Payment History (35%)

It is very important to pay your credit bills on time. Every 30 days late, collection, judgment, or Bankruptcy can cause a significant drop in your score.

2. Amount You Owe Compared to Balances (30%)

Your available credit compared to the amount owed. It’s a good rule-of-thumb to be at 40% or less of the available balances.

3. Length of Credit History (15%)

A helpful advice to keep in mind: The longer your accounts are open, the more positive impact it will have on your overall credit score. In fact, if you happen to have a card that is over 10 years old with even a little activity, it would probably be a bad idea to close that card.

4. Mix of credit (10%)

Generally Speaking, if you have loans, such as a car loan, as well as open credit cards, it helps prove to creditors that you have experience borrowing money.

5. New Credit Applications (10%)

There is a model that compensates for people shopping rates on home and car loans, but it can hurt your credit score to have multiple reports pulled in a short amount of time.

Although time is a necessary factor for improving credit scores, this can be controlled by keeping accounts that are opened during the same period to a minimum.

By following these guidelines over an extended period of time, credit scores can be maintained and improved in order to improve the borrower’s loan potential and interest rate.

Credit Score Overview

A credit score is a number used to represent a person’s creditworthiness in the United States, it is reviewed by lenders in giving a better idea on the likelihood that the particular individual will be able to pay his or her debts.

The number represented is based on statistical analysis on credit report information on a borrower, there are typically 3 major credit bureaus in America:

• Equifax
• Experian
• TransUnion

The first credit scoring system was first established in 1958 by The Fair Isaac Corporation (FICO) for American Investments. The first bank credit card was established using the first credit scoring system in 1970 for American Bank and Trust.

These 3 major major credit bureaus; Equifax, Experian, and TransUnion are three different credit reporting agencies in the U.S. that are used to collect data and compile credit reports on consumers.

FICO software is used by these credit agencies to help generate FICO scores and would in turn be sold to lenders requesting for it. The three credit agencies have their own databases and collect reports from different creditors and is given these information at different times, making it not unusual for a person to have three different credit scores.

By law, in the United States, residents are allowed to view their credit report once a year free of charge by visiting AnnualCreditReport.com, for an additional fee, consumers can view their “credit score” information from each of the three different credit reporting agencies.

The Fair Isaac Corporation also sells FICO scores to residents of the U.S. directly by using data from the two different agencies, Equifax and TransUnion.

An individual’s FICO score can be anywhere between 300 and 850, showing a left-skewed distribution with 60% of scores near the right between 650 and 790.

There are several factors that can be utilized in establishing credit, not excluding bank accounts, employment history, residence history and utility bills.

Along with utility bills, bank account history is critical to lenders for first time loans even if they are not directly reported to credit bureaus you should make sure to maintaing good standing on them. This will give the lender a better idea of what kind of a borrower they are working with, whether they perceive you as a high-risk borrower.

A borrower can usually start an establishment of credit through a bank, in which a credit card is linked to a specific amount of cash deposited into a bank. The bank can take the secured funds for payment if the credit card is not kept in good standing, making this alternative for credit establishment a safer route to take for many borrowers who are trying to build their credit from scratch.

Another way to establish credit can be through department store credit cards as well. However, borrowers should be aware of any high interest rates that comes with these type of credit cards and it would be a good idea to pay off any balances in full.

It is not unusual to find mistakes in a credit report, but simple mistakes can be corrected rather easily by reporting it to the credit reporting agency in writing, by pointing out the error and in providing proof of the error.

Usually, lenders are understanding when it comes to problems with reasonable explanations. You may even be able to put in a request to have your own comments added to explain any reasons as to why you have.

There are no easy ways in improving a person’s credit score, but you can work towards keeping it acceptable by maintaining a good credit history the best you can, in other words, pay your bills on time, and avoid purchasing more than you can afford.