Factors That Decide Your Credit Score
When you go to apply for a mortgage one of the first things your lender will want to know is your credit score. Your credit score is a very important factor that determines whether you can qualify for mortgage. It is used to show lenders how financially responsible you are. A higher credit score means that you are a less risky client whereas a lower score means that you may have issues securing a great loan and rate.
First of all you should know exactly how the credit score is calculated. The numbers on your credit report are calculated to create your credit score. There are five pieces to this calculation: payment history (35%), debt to credit ratio (30%), length of credit history (15%), mix of credit (10% ) and new credit(10%).
Making payments for credit cards and other loans and bills on time carry the most weight on your credit score. Even one late payment can reduce your score. Therefore it's important to pay on time.
Debt to credit ratio
This is directly related to your credit cards. The amount of debt that you have on your credit cards is divided by the credit limit on the cards. The recommended ratio should be about 30%. If you are maxing out your credit cards on a regular basis you are probably damaging your credit score.
Lenders want to see that you have a history of getting and keeping credit. The longer credit history you have, typically the better. Even if you have accounts that have zero balances you should try to keep them open as this will help your credit score.
Mix of credit
Having a variety of different types of credit accounts will help your credit score. It's important to have credit cards, retail accounts, car loans, and mortgage loans. Lenders want to see that you are able to maintain a variety of credit types.
Each time you open or attempt to open a new credit card you prompt an inquiry on your credit report. Every time this happens your credit score can be lowered about five points. You should avoid opening multiple credit cards at the same time as this will hurt your credit score.
When you are in the market for a mortgage your lender will look at many pieces to determine the rate and type of mortgage you that are available to you. Your credit score is a big factor in that determination. Be sure that you know how to properly manage your credit score so that you can be on your way owning your dream home. Want to find the right mortgage loan? or see if you qualify? Contact Florida Real Estate Loans today! 888-631-5993