5 Credit Factors
Your credit history will be one of the biggest single factors in determining your approval and the interest rate you can qualify for. Making sure your score is in good standing with a reputable history is very important and the following 5 factors will help you do that.
1. Credit Mix (10%) – the different types of credit you have attached to your name i.e. credit cards, lines of credit, car loans, student loans, etc. Lenders like to see two different types of credit on your credit bureau.
2. New Credit (10%) – this includes inquiries made for adding new credit to your name and the opening of new credit cards or loans.
3. History (15%) – this relates to the length of time you have had different types of credit loans open for. 2-year history is the minimum lenders like to see for each type of credit.
4. Utilization (30%) – This relates to how much of your available credit you owe and have access to. This is found by adding the total available credit limits across all credit cards and lines of credit and subtracting all outstanding balances.
Having 75%+ of all available credit outstanding will negatively impact your credit score
Having 50%-75% of all available credit outstanding will likely maintain your credit score
Having 10%-50% of all available credit outstanding will positively affect your score
Having 0%-10% of all available credit outstanding will likely maintain your credit score
5. Payment History (35%) – this relates to whether or not you make your payments on time and in what amount. Every month you need to pay the minimum, however, the more you can pay, the better. A single missed payment can have significant impacts on your credit score, more so than any other factor listed above. Missing two consecutive months of payments or two payments within the same year can put you on the fence between being approved or declined regardless of any available down payment, income, or overall score.
These 5 factors are the contributors to what kind of credit score you can have. It will range 300-900, 900 being the strongest and 300 being the weakest.
Inquiries- Conspiracy Debunked
Many people are under the impression that every time your credit bureau is requested, your credit score will take a hit. I cannot speak on other industries or professions but when it comes to applying for a mortgage, there is no impact on your credit score when an independent mortgage broker requests a copy. Additionally, an independent mortgage broker can pull your credit report (only with your permission) every day for 45 days and it will only show up as one inquiry.
Types of Scores
There are currently several credit reporting scores that you have. Most used is a beacon score, but there is also CRS and ERS scores with each of them having their own variations. All banks and lenders are free to use which ever score they prefer because each type of score has slight variations when considering the 5 factors.
Credit reports and their scores are a reflection on your ability to manage borrowed money. The bottom line is; if your report summarizes you in a negative or irresponsible manner based on the above information, banks and lenders will not trust you when you ask to borrow their money in the form of a loans or mortgages. Manage your loans and credit responsibly and keep them in good standing, you are likely to be trusted to borrow mortgage money.
Always take care of your credit!