Fico Scores
Credit scores are an important factor in mortgage loans, but many consumers are unsure about what causes them to receive that score. The typical score model for mortgages are FICO Scores. They are determined by 5 main categories:
- 35% is based on your payment history.
- Including all accounts
- 30% is based on the amount you owe creditors.
- Especially revolving accounts with high balances
- 15% is based on how long you have been using credit.
- The longer you have a good payment history, the better
- 10% is based on your applications for new credit.
- If you are loading up on credit, it may damage your score
- 10% is based on your ‘mix’ of credit.
- Numerous finance company accounts may lower your score
The data used to compile scores is based on information reported by creditors to Equifax, Experian, and Transunion. It does not include information about income, race, sex, or religion. There are key factors to maintaining a good FICO Score:
- Pay your bills on time.
- Even one late payment in the past 12 months can do significant damage
- Keep balances low on revolving accounts.
- Accounts with balances over 30% of the credit limit may lower your score
- Avoid frequent balance transfers.
- Numerous credit applications or balance transfers may lower your score
- Review your credit file at least once per year.
- This enables you to determine any errors or potential fraud
If you feel there is an error on your file, contact the creditor in question and request an investigation. You should also dispute the item with the bureaus at the addresses below:
- Equifax – PO BOX 105873; Atlanta, GA 30348 [1-800-685-1111]
- Transunion – PO BOX 1000; Chester, PA 19022 [1-800-888-4213]
- Experian – PO BOX 2104; Allen, TX 75013 [1-888-397-3742]
Developing credit for first time home buyers
Establishing New Credit
- Banks and Credit Unions – If you have a checking or savings account, you are already a customer! Try here first.
- Department Stores – Another great option but start small and build a good payment history.
- Finance Companies – An option if you have had credit problems in the past.
- Secured Bank Card – The next best thing. Similar to debit cards, but the pay history is reported to the credit bureaus.
Maintaining your New Credit
- How Much Credit Do I Need? – Credit scores are determined in part by how much of your available credit has been used, not by having high credit limits. Don’t start with excessive amounts of consumer credit, i.e. VISA, MC, department stores. If you are having trouble just making the minimum payment due each month, pull back from using more credit.
- When Will I Receive A Credit Score? – If you have one revolving account that has been active for 3 months in good standing, you can receive a credit score!
Protect Your Identity!
- Never Share Your Credit Information – Letting others have access to your name, social security number, or credit card information may put you at risk to be a victim of fraud.
- What To Do If You Are A Fraud Victim – Contact the credit bureaus and your creditors immediately. They will flag your accounts for potential ID theft and help you protect your credit.