5 Tips for Better Credit

How Your Credit Rating Affects Loan Rates

Fair Isaac, the company that created the current FICO is the scoring system used by lenders to evaluate the credit worthiness of potential borrowers has recently made changes that could affect your ability to secure a mortgage and purchase your home.
It is important to understand exactly what a FICO score is and what are the elements that decide with consumers will receive the most favorable rates offered by lenders.

What’s in Your FICO Score?

Scores are calculated from a lot of different credit data in your credit report.  This data can be grouped into five categories as outlined below.
The percentages in the chart reflect how important each of the categories is in determining your FICO score.

These percentages are based on the importance of the five categories for the general population.  For particular groups – for example, people who have not been using credit long – the importance of these categories may be somewhat different.

#1 Payment History
• Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
• Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
• Severity of delinquency (how long past due)
• Amount past due on delinquent accounts or collection items
• Time since past due items (delinquency), adverse public records (if any), orcollection items (if any)
• Number of accounts paid as agreed

#2 Debt – The Amount of Debt You Carry…Close Second
• Lack of a specific type of balances reported
• Number of accounts with balances to total credit limits on revolving accounts
• Proportion of installment loan amounts still owing (proportion of balance to original loan amount on installment loans)

#3 Length of Credit History-Age Matters
• Time since accounts opened
• Time since accounts opened, by specific type of account
• Time since account activity

#4 New Credit
• Number of recently opened, by type of account
• Number of recent credit inquiries
• Time since recent account opening(s), by type of account
• Time since credit inquiry
• Re-establishment of positive credit history following past payment problems

#5 Types of Credit Used – Mix It Up
• Number of (and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)