Importance And Factors That Affect Credit Scores

Credit Scores

Gustan Cho Associates

Credit scores is probably the second most important factors that affect credit scores when qualifying for a residential mortgage loan.  The first most important factors that affect credit scores is income.  You can have the best credit scores in the world but without documented income, you are dead under water. No mortgage lender in this planet will give you a mortgage loan approval without documented income even with 850 FICO credit scores after the 2008 real estate and mortgage collapse and the total overhaul of the mortgage industry.  However, credit, credit history, payment history, and credit scores is extremely important and it is your credit scores that will determine whether or not you qualify for a mortgage now or whether you need to wait until you boost your credit scores.  Mortgage loan programs have minimum credit score requirements.  For example, if you want to qualify for a 3.5% down payment home purchase FHA insured mortgage loan, you would need a minimum of a 580 FICO credit score.  If your credit scores fall between 500 FICO credit scores and 579 FICO credit scores, you would need a 10% down payment under HUD’s lending guidelines.  HUD is the parent of the Federal Housing Administration, commonly referred to as FHA.  Fannie Mae and Freddie Mac are the two mortgage giants that set conventional mortgage lending guidelines and the minimum credit scores you need to qualify for a conventional loan is 620 FICO.  Minimum credit scores for Jumbo mortgages is normally 700 FICO.  There are 5 factors that impact credit scores

Payment History Is Most Important Factors That Affect Credit Scores

Your payment history has a 35% impact on your credit scores.  Paying your monthly debt on time has the largest benefit and major impact on your overall credit scores.  One late payment on one of your credit history can plummet your credit scores by more than 50 points.  Judgments and charge offs as well as collection accounts can have long term negative impacts on your credit scores.  Also, being late on a high minimum payment will have greater negative impact on your credit scores than being late on a low minimum payment.  The good news is that the older a late payment is, the less of an impact it will have on the person’s credit scores.  A late payment that has aged over 2 years will have less of an impact than a late payment that is two months old.

Outstanding Credit Balances Of 20% Or Under Will Have Positive Impact On Credit Scores

To maximize your credit scores, your outstanding balance should be at least at 20% or less than the total available credit limit.  For example, if your credit limit on your Capital One Credit Card is $1,000, your should have no more than a $200 balance on your credit card balance to have the highest available credit score.  If possible, you should have a lower credit balance.  Your outstanding credit balance has a 30% impact of your credit scores.

Credit History Has 15% Impact On Credit Scores

Your credit history has 15% impact on your credit scores.  Your credit scores consists of the total length of time you have had an individual credit card or credit tradeline.  The longer you have had a credit trade line, the stronger borrower a creditor will view you as.  That is why it is strongly not recommended that you close out an active credit trade line even though you do not use it.

Credit History Has 15% Impact On Your Overall Credit Scores

Your overall credit history has a 15% impact on your overall credit scores.  Those with a longer credit history will have a stronger positive impact on their credit scores than those who recently established credit.  Both positive and negative credit will be reported on your credit report.  When you go through a period of negative credit, it will be reflected on your credit report and it will really negatively impact your credit scores, however, as it ages, the negative credit derogatory items items will have less and less of an impact of your credit report.  All negative items will remain on your credit report for a period of 7 years and needs to be removed by federal law.  Banruptcies remain on your credit report for a period for ten years.

The Type Of Credit You Have Has 10% Impact On Your Credit Report

Having different types of credit types will have a positive impact on your credit report.  For example, if you have a combination of credit cards, installment loans, auto loans, home loans, you will have a more positive impact on your credit scores than if you were just to have credit cards on your credit report.

New Credit Is 10% Of Credit Scores

New credit has a 10% impact on your credit scores.

Credit Inquiries Have 10% Impact On Credit Scores

Credit inquiries have extremely negative factors on a person’s credit scores.  Each credit inquiry can affect a consumer’s credit scores by 2 to 30 FICO points.  Credit inquiries have a 10% impact on one’s credit scores.

Related> FICO credit score chart

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Related> FICO’s 5 Factors

Related> Improving credit scores to qualify for mortgage

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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