Credit scores can range from 300-850 with 620-699 being Fair, 700 to 740 being Good and over 740 being Excellent. There are three credit reporting agencies: Equifax, Transunion and Experian. For a mortgage, we use a tri-merge report which includes all three scores and uses the middle score for the mortgage.
Depending on what type of credit you are applying for, NOT ALL SCORING IS ALIKE. This means your mortgage score can be different, and possibly lower, than a score you may see on another credit score reporting website, as there are different algorithms used depending on the type and amount of credit you are applying for.
As an example, a store credit card may have different algorithms and lower criteria for a $500 line of credit, so it could show a higher credit score than a mortgage score for a much higher amount of credit.
There are five factors that make up your credit score for a mortgage:
- 35%: payment history – established from your payment history, collections, and public records
- 30%: amount owed – established from your credit utilization, this considers the amount that you owe compared to how much credit you have available
- 15%: length of credit history – we suggest not closing your oldest accounts
- 10%: new credit inquiries – applying for new credit or opening several credit accounts in a short amount of time can represent a greater risk, especially for people without a long credit history; that being said, credit agency software should be able to detect multiple inquiries from the same credit type within a short period of time without a negative impact, such as when you are shopping for a mortgage
- 10%: types of credit – your credit score considers your mix of credit cards, retail accounts, installment loans, mortgages, etc.
Some ways you can improve your score include:
- Pay bills on time
- Have minimal lines of credit, and at least lines
- Don’t max out your cards; stay at a lower percentage of the total limit on the cards
- Hang on to older credit lines
For more information contact Barry Koven (NMLS #404510) a top producer in his market and can be contacted at www.barrykoven.com, email email@example.com or 917-597-1330.