Every home buyer finds out early on that their credit score plays an important part in the home buying process, and the interest rate the lender offers.

A credit score (also called a FICO score) is a number the lenders use to estimate risk.  Experience has shown them that borrowers with higher credit scores are less likely to default on a loan. Credit scores are generated by the information located in your credit report.  This is why it is recommended that you verify the information in them to maintain accuracy.

Which part of your credit report is the most important?

The approximate breakdown of the information each portion of your report adds to the score.

 

35% Your payment History, which includes:

Number of accounts paid as agreed

Negative Public records or collections listed

Delinquent accounts

30% The amount you owe on your accounts

What types of accounts you have and what you owe on each of them

How much you’ve charged on your revolving credit – they are looking for indications that you are over extended.

The amounts you owe on installment loans, are you paying them down consistently?

Number of zero balance accounts

15% Length of your credit history

Length of time tracked by your credit report

How long have your accounts been open?

How often do you use them?

(The longer your good history is, the better your credit score is)

10% Types of credit used

What kind of accounts do you have? (installment, revolving, mortgage, etc.)

A mixture of accounts will usually generate a better credit score than only having revolving accounts (credit cards)

10% New Credit

The number of new accounts you’ve opened in proportion to total accounts

The number of recent credit inquiries

Have you re-established a good credit history after encountering problems?

             

Credit scoring only considers the items in your credit report. Lenders will look at other factors that are not included in the report, such as income, employment history and the type and amount of credit you are seeking.