* Question: Which factors go into determining the credit rating? * Explains Eyal Trofen NMLS # 874253, Consultant ...
Q: What factors enter credit rating?
Explains Eyal Tropan, a licensed mortgage broker and consultant in Washington, Oregon, California, and Texas, and an expert on business loans in dozens of other countries:
The credit rating is a number between 350 and 850, on a scale created by Fair Isaac Corporation (FICO). This number is known as your FICO Score, and it is used by lenders as part of your credit status picture and summarizes the risks involved when you are escorted.
A high credit rating indicates a low risk level and usually translates into a lower interest rate. Thus, credit rating can be an asset, or an obstacle, on the way to obtaining credit.
Your credit rating changes over time, each time new information is updated in your credit report, with a weighting of five main factors:
* Payment history - 35% of the total score *
Late payments can have a big negative impact on your credit rating. Recent late payments will lead to more lost points than older late payments, since this factor is weighted for the last activity. Frequency, but also the severity of late payments are reflected; A delay of 90 a day is considered worse than a delay of 30 a day. Over time, the impact of old late payments will decrease, as the latest payment history is a better reflection of your current credit risk. You can improve your credit rating by making sure you always pay all your bills within no more than 30 days from the due date.
* Utilization rate - 30% of the total score *
The ratio of your credit balance to the available credit limit is known as the utilization rate. The utilization rate of individual credit cards, as well as the total credit limits of all credit cards, are taken into account when considering your credit risk. The credit rating may improve when the ratio between the balance and the available credit is below 30%. Plan ahead to improve your credit rating by paying credit cards below 30% of their limits, or by applying to increase your credit limit, to improve your utilization rate. Remember - such a request may require a credit query that will adversely affect the rating - see below.
* Length of history - 15% of the total score *
A prolonged credit history can have a positive impact when considering credit risk. Your credit accounts have a total age that goes up and down over time; Opening new accounts will reduce your overall credit age, and you'll typically lose credit points in the first 12 months after you open your new account. In the next 12 months, the effect of the new account will be neutral, and then after 24 months of payments in time, you will start earning points.
To improve your credit rating, keep your old accounts open - even if you no longer use the card. Unless there is a high cost to pay annual service fees, the card provides positive points as an existing veteran account.
To keep your account open and active, try to use each card at least once every 6 months, which will retain the positive history of timely payments.
* Type of credit - 10% of the total score *
Escorts like to see a combination of different account types. A good mix illustrates your credit worthiness and indicates a reduced credit risk. Various types of credit include installment loans (such as mortgages and car loans), and revolving credit (credit cards). To optimize your credit and get the highest score in this category, you will combine one large payment loan, such as a mortgage or HELOC, with another installment loan (eg a car loan) with a minimum of three rolling accounts (credit cards). Have you finished paying the mortgage? No problem. Add a home credit line (HELOC), which can be a smart tool to optimize your credit rating. Every few months HELOC used to pay any expenses, and paid back next month at a minimal cost.
* Queries - 10% of the total score *
Each year, you can request a free copy of your credit report from the major reporting agencies. This type of query is considered a "soft" query, and has no negative effect on your ranking. Credit inquiries required by an employer, cellular company, or insurance company (with your permission), also fall into this category.
Credit queries that will affect your credit rating are in the category of "difficult" query. A difficult query occurs when a lender pulls out your credit report. If you apply for new credit cards from a number of lenders in a short period of time, each application is counted as a separate hard query, resulting in a significant loss of points in your credit rating. However, if multiple lenders pull credit reports for one new account, such as a mortgage, all queries are counted as just one query.
We recommend that you optimize your ranking by sharing personal information only when necessary to complete a credit transaction and limiting the amount of accounts you try to open at a time. New queries will reduce your ranking for only 12 months, but stay on your credit report for two years.
If you have any further questions on issues related to real estate financing and mortgages, I would love to post answers in the forum.
(Note: American Pacific Mortgage is not a credit repair company, this information is intended for general knowledge.
Link to the original post in the United States Real Estate Forum on Facebook - Works on a desktop computer (To view the post must be members approved for the forum):
https://www.facebook.com/1885945295012997/posts/2241101582830698
The original responses to the post can be read at the bottom of the current post page on the site or in the link to a post on Facebook and of course you are invited to join the discussion
An important tip for those who rent: use the service of a company that reports the rental to credit scoring companies, yes it costs a few pennies a month but very effective in building / improving the credit score.
Thanks Eyal Tropen. It is fun to know that there are people with your knowledge in the forum who can advise the community about mortgages. Thank you for your contribution to our wonderful forum!