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CREDIT SCORES

For most mortgages, your credit can have a significant impact on the type of program you qualify for, the interest rate, and or closing cost fees you pay. To a certain point, the better your credit, the more programs, and better the rate and fees you will qualify for. Your credit, or your history of paying your bills is used to predict how likely you are to make your payments in the future.

A statistical model know as Beacon or Fico score was developed in the 1980ís to predict future payment history. Lenders from all industries use your credit score to determine how likely it is that you will make your payments if they lend money to you. The higher your score, the more likely you are to make your payment on time. Conversely, the lower the score, the more likely you are to be late on your payment.

When you authorize a mortgage company to pull your credit, the data comes from one to three credit bureaus ( Equifax, Experian and/or TransUnion). If available, each will issue a credit score. Typically the middle of the three is used as your final score. Scores typically range from the low 400ís to the low 800ís. Different portions of your credit are given different weights:

∑ 35% Previous credit performance
∑ 30% Current level of indebtedness (current balance compared to high credit)
∑ 15% Time credit has been in use ( opening date)
∑ 15% Types of credit ( installment and revolving accounts)
∑ 5% Pursuit of new credit ( number of inquiries)

Scores reflect payment patterns over time with more emphasis on recent information. In general your score will be better if you:

∑ Pay your bills on time. Late payments and collections can have a negative impact on your score.
∑ Keep balances on credit cards low as possible. Higher balances can lead to lower scores.
∑ Donít open new accounts that are not needed.
∑ Pay off debt rather than moving it around. Donít close unused cards as a short-term strategy to raise your score. Owing the same amount with fewer open accounts may lower your score.

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