Credit scores are a means of evaluating borrowers to determine their ability and trustworthiness to repay a debt. Information regarding your history of borrowing credit or making certain payments on time is gathered and used as a basis for a credit scoring system. Using a complicated algorithm, credit scoring companies use the following information to provide a credit profile to lenders and other creditors about your creditworthiness—your ability and the likelihood of repaying debt and making on-time payments.

• Your borrowing history, including how much was borrowed and payment history
• Age of your credit accounts
• Total outstanding debt
• Comparison of your debt to your monthly income (debt to income ratio)
• Types of credit accounts you have open
• Predilection for late payments
• Collection actions taken

Typically, this information is gathered and analyzed and then displayed as a number—a FICO score. This number, or score, falls between 350 and 850. The lower the score, the higher the risk you are to be offered credit, and the higher the number, the lower the risk you are considered to be. Those with a higher score can often receive better loan terms and interest rates, especially on a home loan.  

When you are ready to apply for a home loan, it is important to ensure that the information on your credit report is accurate. You can request a free, in-depth report of your credit history once every 12 months for free. To get copies of your report, contact the three major credit reporting agencies:

Equifax: (800) 685-1111 
Experian: (888) EXPERIAN (397-3742) 
Trans Union: (800) 916-8800 

You may also access your report online at https://www.annualcreditreport.com.

By reviewing this report, you can check for any incorrect information as well as for fraud—not just to verify your credit score.

What can I do to improve my credit score?

Credit scores aren’t always equally calculated by each of the three major agencies, although they are usually close in their credit scores. Some weigh certain aspects of your credit history heavier than others, which can be a good or bad thing, depending on what it is. Typically, the following are the most common things to affect your credit score:

• Timely Payments. Making payments on time, even just the minimum amount, is a significant factor in determining your creditworthiness. Your score can be impacted negatively if you have a late payment, more so if late payments are a recurring issue on your account.
•  Non-Payments. Skipping out entirely on payments, no matter the reason, greatly affects your credit score. Accounts that have not been paid for 30+ days are often sent to a collection agency and marked on your credit history. As are bankruptcies, foreclosures, and repossessions.
• Total Outstanding Debt. Your score can drop if you have a lot of debt, using up most of your credit line or in comparison to your monthly income.
• Account Age. Not having much credit history can also influence your score. The longer an account is open, the longer credit agencies have an insight into your borrowing habits (good and bad).
• Inquiries. Signing up for new accounts requires lenders to check your credit report. Multiple or frequent checks by lenders can negatively affect your score (monitoring programs or “pre-qualifications” are typically excluded).
• Type of Debt. Some credit scoring agencies look at the types of debt you have—private loans, credit cards, secured/unsecured debt, car, or home loans, etc. Too much of one type of debt can be a bad thing, especially unsecured debt like credit cards where there is no property that can be repossessed in the event of defaulting on a loan.
• Other Data. Credit agencies may also make determinations based on more than just credit/debt-related information. For example, they may consider other information such as your salary, your job title, or length of employment.

To improve your credit score you should focus on paying your bills on time, paying more than just the minimum to bring down your outstanding balances, and not opening new accounts. Contact us today to review your creditworthiness and home loan qualifications or for any questions you may have regarding the home loan process or improving your score to better qualify for a property or home loan.