What Goes Into Your Score?

What Goes Into Your Score?

There are five factors that make up your credit score, and each factor weighs differently on your score. Here’s the breakdown:

• 35% of your score is based on Payment History: The biggest chunk of your credit score, payment history tells lenders how you have been paying your bills. Late payments, collections, past due accounts, and public records such as bankruptcies can seriously hurt your score. It is very important to not incur late payments on Mortgage Accounts. One 30-day late can cost you 50-75 points.
• 30% of the score is based on Amounts Owed: The second biggest factor affecting your credit score, this factor takes into account how much is owed on all your accounts, how many accounts you have that carry a balance, and what percentage of your available credit are you using. Keep credit card balances under 50% of the available limit at all times, and when preparing to make a large purchase, bring those balances down to under 30% at least 3 months before applying for the loan.
• 10% of the score is based on New Credit: This factor includes the number of recently opened accounts, the number of credit inquiries, and the time since each account was opened. This portion of the score also looks at how often you apply for credit. It is best when applying for a mortgage that you do not open or apply for new credit accounts. When shopping for a new mortgage or auto loan, it pays to plan ahead so that you do all of your shopping within a focused period of time. You can have your credit report pulled as many times as you want within a 14-day period when shopping for a mortgage or auto loan and it will only count as ONE hard inquiry.
• 15% of the score is based on Length of Credit History: This factor scores you on how long you have had credit, the time since you opened an account and the time since recent account activity. While applying for a mortgage, consumers will want to leave open accounts they have had for a long time as it will help boost this portion of the score.
• 10% of the score is based on Types of Credit Used: A mix of credit is the best way to develop a good score. The most important consideration is to be picky about the type of credit you apply for because that will really help your score. For instance, to the scoring system, third party financed credit cards (i.e. department store credit cards) are considered to be particularly low quality credit as the holder of such cards can appear desperate for credit. However, there is one exception to this rule, and that is that the scoring system considers Sears credit cards as a positive.

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