Your credit score is a number between
300 & 900, with a good credit score being above 650.
Your credit score is made up of the following criteria:
35% - Your Payment History
30% - Amounts You Owe
15% - Length of Your Credit History
10% - Types of Credit Used
10% - New Credit
When
shopping for a mortgage through conventional means, your
credit score is an invaluable resource to a prospective
lender. Your score will determine what interest
rate you are charged, and possibly how much down payment
you will need.
Payment History
If you
have been late with your payments or had payments that
went to a collection agency, these will most likely be
reported on your credit report. Each time a you
were more than 30 days late on a payment, the company to
whom you owed money would report that information to the
credit bureau. Each time this happens, your score
is lowered.
Amounts You Owe
Your
credit rating also takes into account how much credit
you have available versus how much you owe. If you
are using more than 75% of the available credit that you
have, this may be a sign that you are over-extended.
In order to boost your credit score dramatically, try
keeping balances below 30% of the available credit
limit.
Length of
Your Credit History
This is
important to a lender because potential lenders like to
see stability. If all of your credit accounts are
new, this may be a sign that you have applied for a lot
of credit at the same time, which does not reflect well
on your credit report. Having a short credit
history makes it hard for a lender to see the big
picture with how you handle your available credit.
Types of
Credit Used
Your
credit report will also show the different types of
credit that you have. You may have student loans,
auto loans, credit cards, store cards and lines or
credit. Generally, credit cards from respected
financial institutions will have a favourable impact on
your score providing you have used them wisely.
Having credit from financing companies may negatively
affect your credit score. Many stores have
financing arrangements with a finance company to provide
their "don't pay for one year" incentives. Many of
these programs are through finance companies that will
charge extremely high interest rates (above 20%) once
the one year period is over. Next time you are
going to apply for one of these incentives, keep in mind
that if you have a credit card, it may be wise to use
the credit that you already have instead of applying for
credit with an finance company.
New Credit
Each time
you apply for new credit, the company where you obtain
the credit will make an inquiry on your credit report.
This is generally not a problem until you start applying
for a lot of credit within a short period of time.
This is a sign that you are seeking credit to purchase
items for which you cannot actually afford. Only
apply for credit when it is absolutely necessary and if
you already have a credit card or two, it's likely not
in your best interest to apply for another unless you
have a specific purpose for it.
Your credit rating is often the
largest factor involved in deciding whether a mortgage
lender approves or declines a mortgage application.
If your credit has suffered from late payments,
collections or bankruptcy, your credit score may be
quite low. Having a low score does not automatically disqualify
you from home ownership. When we look at your
situation and match you with a prospective lender, we
will look at a number of other factors. Down
Payment, employment stability, income and re-established
credit are other factors that we will present to a
prospective lender.
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