A key requirement for qualifying for an excellent mortgage requires strong FICO credit scores, as they can have a major impact on your interest rate and your loan terms. The FICO score is typically composed of a reporting from three major bureaus: Experian, Equifax, and Transunion.
The scores are derived algorithmically and was developed by the company FICO, who specialize in “predictive analytics”. They analyze data shared with them and predict what is likely to happen based with a borrower’s history with their creditors.
FICO breaks down the score calculation accordingly based on the following metrics:
- 35% payment history
- 30% amounts owed
- 15% length of credit history
- 10% new credit
- 10% credit mix
The significance of these categories varies from person to person. While the FICO score is calculated only by things listed on your credit report,mortgage lenders will look at income, how long you’ve been at your present job, and the type of credit being requested.
To have a positive payment history, you must have paid past credit accounts on time. Accounts largely considered are: credit cards, retail accounts, installment loans, finance company accounts, mortgage loans, collections, bankruptcies, foreclosures/liens, lawsuits, and wage attachments.
If you do have late or missed payments, they look at how late they were, how much was owed, how recently they occurred and how many were late.
Owing money on open credit accounts does not always mean you will receive a low FICO score. Depending on how long you’ve had the account and how consistent the payments have been, it could actually increase your score.
In some cases, low credit utilization will have a more positive impact on your score than not using any of your available credit at all.
On the same note, using a high percentage of your available credit means you’re close to maxing out your cards which does have a negative effect on your credit score. If you have a high number of open accounts with large amounts owed it can indicate that you’re at higher risk over over-extension. If you are trying to apply for many different forms of credit in a short period, that could send some red flags.
Feel free to reach out to Bluefire Mortgage Group today with any questions that you may have at (760) 930-0569.