California Mortgage Planning
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Credit Scores
Credit scores can range from a low score of 300 to a high score of 900. Most consumers have a credit score ranging between 400 and 800. The higher the score, the better it is for the consumer because a high credit score translates into a lower interest rate. This can literally save thousands of dollars in financing fees.Credit scores are comprised of five factors.
Points are awarded for each component and a high score is most favorable. The factors below are listed in order of importance.
Payment history - 35% impact.
Paying debt on time and in full has the greatest positive impact on your credit score. Late payments, collections, charge-off's and judgments have an immediate, and negative, impact on your score. Delinquencies that have occurred in the most recent two years carry more weight than older items.
Outstanding Credit Balances - 30% impact.
This factor considers the outstanding balance compared to the available credit. Ideally, you should make every effort to keep the balances below 50% of the available credit limits. A balance below 30% is even better.
Credit History - 15% impact.
This portion of the credit score indicates the length of time since a credit line was established. A seasoned borrower with long-term credit accounts will always be stronger in this area.
Type of Credit - 10% impact.
A mix of various types of credit such as mortgages, installment loans and charge cards results in a more positive credit score than a concentration of debt from charge cards alone.
Credit Inquiries - 10% impact.
This quantifies the number of credit inquiries made within a six-month period. Each hard inquiry can cost from two (2) to 25 points on a credit score. Important note: if you pull a credit report on yourself, it will not impact your score.
The following is the general rating of representative scores in the mortgage industry:
Each of the main credit bureaus - Equifax, Experian and Transunion - provide their own score. Mortgage Lenders use the middle score of the three provided as the "representative" score.
740 - 900 Excellent
680 - 739 Good
620 - 679 Fair
300 - 619 Poor