If you’re considering purchasing a new home and applying for a mortgage, consider what lenders are looking for in qualified applicants. Understanding how your credit score is calculated can help you improve your credit and help you lock in a low rate.
Your credit score is a number based on different factors in your credit history, including:
1. Payment History. Do you make your payments on time or are you late? If you’re late, how late are those payments? Are you paying in full or only making minimum payments?
2. Amounts Owed and Available Credit Balances. Creditors look at how much installment and revolving debt you owe. But they also want to know what percentage of your available credit balance you are using.
3. Length of Credit History. How long have your credit accounts been open? Which accounts have been closed and why?
4. New Credit Accounts. Opening several new accounts can affect your length of credit history, your available balances and could negatively impact your credit score.
5. Types of Credit. Creditors like to see a variety of types of credit, including installment loans (such as auto loans), revolving loans (such as a mortgage or home equity loan), and open credit accounts (such as credit cards).
Paying your bills on time and your available balance are the two biggest factors in calculating your credit score, accounting for over 65 percent of your credit score. Handle these two things well and you’re more likely to have a higher credit score.
Although the last three only account for 35 percent of your score, if you keep applying for new lines of credit, it will affect your score. In other words, don’t go opening a bunch of credit cards!
With record low rates, now couldn’t be a better time to improve your credit to lock a rate.
See full article at Equifax Finax Blog