Anatomy of a Credit Score

Sure, you’ve got debt, but you’ve never missed a payment so you must have a high credit score, right? Think again. Although payment history does account for 35% of your credit score, there are several other factors that can also make or break you and your ability to obtain credit.

How much you owe is almost as important and how timely you pay

30% of your overall score is based on how much credit you have outstanding relative to the credit limits on your accounts.  So, even though you have never missed a payment, being at or close to the limit on an account will still cost you. Experts have even gone so far as to suggest that no more than 35% of our available credit should be borrowed against in order to keep your score in top shape.

Mom and Dad may have an edge on you

When it comes to credit scores, age matters. Actually, the length of time you have had credit established can account for up to 15% of your score. So, even if you’ve got your debt under control and have never missed a payment, Mom and Dad may still have you beat on credit scores because of the simple fact they have probably had a longer established credit history.

That balance transfer offer may save you interest now, but may cost you on larger purchases down the road

An offer arrives in the mail for a new credit card with a low balance transfer rate.  Even though it looks like a no-brainer, the lower interest rate you may pay with the new card may not be worth the potential hit to your credit score if you are looking to make a major purchase down the road, such as a new home or car. 10% of your credit score is determined by how many newly opened accounts you have, as well as the types of accounts they are (credit cards, finance companies, etc). Balance transfer offers can make sense at the right time, but if you are shopping for a home or other major purchase you may want to hold off on establishing any new credit for the time being. 

What about inquiries?

People are always asking us what effect a mortgage inquiry will have on their credit score when they are pre-qualifying for a home loan. In general, inquires account for a very small percentage of your credit score, and certain types of loans, such as mortgages, where it is typical to shop around for the best rate, have an even smaller effect. The newest credit scoring modules allow for multiple inquires within a 30 day period to count as only one total inquiry, as long as they are assumed to be for the same type of financing (mortgage, auto or student loans). 

Now that I understand how a credit score is calculated, how do I find mine out?

You can contact the three major credit bureaus to request a copy of your credit report and credit score:

http://www.experian.com/

http://www.transunion.com/

http://www.equifax.com/

At Dragas Mortgage Company, we will send you a copy of your credit score whenever you pre-qualify with us for a mortgage, along with a summary of what factors went into determining your score. If your credit needs a little TLC before you are ready to purchase a new home, we can counsel you on how to improve your credit and stay in contact with you to help you move from renter to homeowner. Prequalify today at http://www.dragasmortgage.com/.