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THE COMPONENTS OF A FICO CREDIT SCORE

Why your credit is so important:

The credit scoring model seeks to quantify the likelihood of you the consumer to pay off debt without being more than 90 days late at any time in the future. Credit scores have many different ranges, however, the score that is used by 90% of the lenders in the USA is the FICO score and it ranges from 300 – 850. The higher your score, the better it is for you – a high score translates to lower interest rate.

Only about 1300 people in the USA have credit scores about 800. These people have immaculate credit and get the best rates.

Here’s a breakdown of the five elements of the FICO score:

1. Payment history: 35 percent impact of the total credit score is based on a borrower’s payment history, making the repayment of past debt the most important factor in calculating credit scores. According to FICO, past long-term behavior is used to forecast future long-term behavior.
Delinquencies that happened in the most recent two years will carry more weight than older ones.

2. Credit utilization: 30 percent impact of the total credit score is based on a borrower’s credit utilization — that is, outstanding Credit Card Balances
As you see, the first two factors make up nearly two-thirds of your score. So if you pay your bills on time and don’t carry big balances, you’re two-thirds of the way toward a good credit score. The final credit score pieces can move you from a good score to a great one. “The remaining one-third of your score is determined by how long you have managed credit, to what degree you have pursued new credit recently and the variety of credit types you have successfully handled,” Watts says.

3. Credit history: 15 percent impact of the total credit score is based on the length of time each account has been open and the length of time since the account’s most recent action.
As a result, it is impossible for a person who is new to credit to have a perfect credit score. A longer credit history provides more information and offers a better picture of long-term financial behavior. Therefore, to improve their credit scores, individuals without a history should begin using credit, and those with credit should maintain longstanding accounts.

4. New creditInquiries
This takes into account, the number of inquiries made on your credit within 12-month period. Each inquiry can cost you from 3 to 15 points. Pulling your own credit report does not cost you

5. Credit mix:Each comprise 10 percent of the total credit score.
A mix of auto loans, credit cards and mortgages is more positive than concentration of credit cards. Strive to have 1 – 2 credit cards open at any time.Remember that the credit score is a computerized calculation.

THINGS TO DO AND NOT DO DURING YOUR LOAN PROCESS

There are a few tips to consider as you seek to obtain mortgage financing. As soon as you begin to make mortgage payments on time and in full what is due, you credit standing will begin to improve. To help avoid any delays with your loan approval, we have created a list of Do’s and Don’ts for you to follow during your loan transaction to make things as smooth as possible.

Do

• Continue to make your mortgage or rent payments on time
• Stay current on all existing accounts
• Continue to work for the same employer
• Continue to use the same insurance company
• Continue living at your current residence
• Continue to use your credit card as you normally would
• Keep credit card balances at or below 40% of credit limits
• Call us before doing anything regarding your employment, credit cards or assets.

Don’t

• Make a major purchase (car, boat, etc.)
• Apply for new credit or loans of any kind
• Pay off any collections or charge-offs before consultation
• Change bank accounts or banks unless advised
• Consolidate your debt into fewer accounts
• Start any home improvement projects
• Deposit cash or non-traceable funds
• Close credit card accounts
• Borrow money
• Transfer checking or savings balances from one account to another
• Max out or over charge existing cards
• Raise red flags to the underwriter (i.e. co-signing on another person’s loan, change your name and address)
• Plan a vacation during your loan transaction without informing your loan officer
• Do not give notice to your landlord before consulting with your loan officer

Very Important!

Do not incur any additional debt during the loan process. This could potentially have an adverse effect on our ability to offer you financing. This also includes raising balances on existing credit cards. We understand that special circumstances might arise during your transaction. Please contact us should you have any concerns or questions.