How Your Credit Score is Calculated
Understanding how your credit score affects the home buying is imperative. A credit score is a number that lenders use to estimate risk. Experience has shown them that borrowers with higher credit scores are less likely to default on a loan.
You should find out your credit score early-on so that if it needs to be brought up you have time to raise it. Your credit score plays an important part in the home buying process and in determining the interest rate that a lender offers.
How are credit scores calculated?
Credit scores are generated by plugging the data from your credit report into software that analyzes it and cranks out a number. The three major credit reporting agencies don't necessarily use the same scoring software, so don't be surprised if you discover that the credit scores they generate for you are different.
Which parts of a credit history are most important?
The pie chart above right shows a breakdown of the approximate value that each aspect of your credit report adds to a credit score calculation. Use these percentages as a guide:
35% - Your Payment History
30% - Amounts You Owe
15% - Length of Your Credit History
10% - Types of Credit Used
10% - New Credit
How Your Credit Score is Calculated
Credit scores for millions of Americans may soon increase due to two major changes in credit scoring.
Starting July 1, the three major credit agencies — Experian, Equifax and TransUnion — are dropping certain negative information from credit reports, including tax liens and civil judgments.
According to FICO, out of the 200 million Americans with credit scores, 12 million consumers will see them increase in July. However, it may not be by much. FICO projects 11 million consumers will see a score increase of less than 20 points.
"It's good news for the consumer, clearly, because the credit score is used almost ubiquitously across the world of consumer finance, and lenders use it, insurance companies use it, credit carders use it," said John Ulzheimer, a credit specialist who has worked for Equifax and FICO.
If you are interested in buying, contact The Swain Team today for a free Buyer Consultation. We will review the process with you as well as help you get preapproved and find the best loan program available for you. 215-757-7257 or TheSwainTeam@gmail.com
Positive Changes in Credit Scoring Coming July 2017
Know What's On Your Credit Report
Anyone who has ever had a bank account, mortgage, credit card, car loan, or account with a retail store will invariably have a credit rating. Most information in your credit rating comes from companies you have credit with, as well as from certain public records such as tax liens, bankruptcies, judgments and lawsuits. It is important to know and understand your credit rating, how the information is compiled, and how it affects your ability to acquire a loan for your new home.
A good rule of thumb for those looking to establish credit is 3 credit cards for 3 years. Put little on them and pay them off each month.
Credit reports are usually divided into five sections:
1. Your credit history.
2. Who has reviewed your credit history.
3. Information you have provided for the credit company.
4. Specific identification information about you.
5. Explanatory notes and comments.
There are three major credit-reporting agencies, Trans Union, Experian and Equifax.
As a consumer it is important to know your credit score and what is on your credit report. Often, we hear about a person with a similar name’s account being linked to the wrong credit report. This will also help you identify any collections accounts, and verify that your identity is safe.
Create a free account at https://www.creditkarma.com. Here you can review your credit report and keep track of your score.
If you are thinking about buying in the future it is a great idea to educate yourself in advance. Sit down with a mortgage lender and review your credit. They can offer tips to increase your credit score if needed.
The Swain Team can recommend a reputable mortgage lender who has the reputation of providing excellent service and good rates.
If you have any questions or if you are ready to start thinking about buying a home - Just call us at (215) 757-7257 or email us at TheSwainTeam@gmail.com. We are always happy to help!