Factors Influencing Credit Scores

Factors Influencing Credit Scores When Applying For Mortgage

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Factors Influencing Credit Scores When Applying For Mortgage Was UPDATED On January 8th, 2019

There are five Factors Influencing Credit Scores:

  • Payment history
  • Credit balances outstanding
  • Credit history longevity
  • Types of credit types
  • Credit Inquiries

In this article, we will cover and discuss the Factors Influencing Credit Scores when applying for a mortgage.

How Mortgage Underwriters Analyze Borrowers Credit Reports

The types of credit the consumer has in his or her profile, and credit inquiries is looked at by mortgage underwriters.

  • Underwriters are concerned by past timely credit history
  • Past performance is a good indication of how consumers pay their bills
  • Special emphasis will be placed on timely payment history in the past 12 months
  • It is alright to have gone through financial hardship
  • However, underwriters will look at credit history prior to and after hardship

Late payments after bankruptcy and/or foreclosure is really frowned upon.

First Factors Influencing Credit Scores: Consumer Credit Payment History

The first type of Factors Influencing Credit Scores is the overall consumer overall payment history on their credit report. This accounts for 35% of the overall credit score of the consumer:  

  • A consumer paying their monthly bills on time and/or in full has the best impact on their overall credit scores with the credit bureaus credit scoring model
  • Any late payments, collections, judgments, and charge off accounts will have an extremely negative impact on a consumer’s credit  scores  
  • A consumer being late on a high monthly credit payment will have more severe consequences on his or her credit scores than being late or missing a lower monthly credit payment
  • Credit delinquencies in the most recent two years will have more of a negative impact on consumer credit scores
  • This will carry more of a negative weight than older derogatory credit items

All negative payment history such as late payments and other derogatory credit items with the exception of credit inquiries will remain on consumer credit reports for a period of seven years from the date of the last activity.

Second Factors Influencing Credit Scores: Outstanding Credit Card Balances

The second Factors Influencing Credit Scores is outstanding balances on revolving credit accounts. This accounts for 30% of credit scores.

  • The consumer’s outstanding credit balances is actually the available credit to the available credit limit ratio
  • This ratio is the ratio between the current outstanding revolving account balance and the total available credit limit
  • Maxing out a credit card will yield a high ratio
  • This will have a very negative impact on the consumer’s credit scores and credit scores will drop significantly
  • This factor marks the ratio between the outstanding balance and available credit
  • Consumers should have a ratio of less than 10% where the credit balances are under 10% of the available credit limit

The good thing about maxed out credit cards is that by paying down the credit card balances, the consumer credit scores will instantly go up the next update period.

Overall Credit Payment History On Credit Report

What is the overall history of loan payments in the credit report

The overall credit payment history is the third Factors Influencing Credit Scores. This accounts for 15% of the overall credit scores.

  • A consumer’s overall credit history is the longevity on how long the consumer has had a particular credit or credit accounts
  • The start date in judging longevity starts from the date the credit account was opened
  • Never close out an open credit account even though you are not using the credit account even though consumers do not use the revolving credit account

Open tradelines are priceless and add strength to the credit profile of the consumer.

Having Different Types Of Credit On Credit Report

10% of a consumer’s credit profile is from having different types of credit on the credit reports.

  • A consumer’s mix of credit and types of credit he or she has in their credit profile has a 10% impact of their overall credit scores

The mix of credit and types of credits include revolving credit accounts such as the following:

  • Credit card accounts
  • Automobile loans
  • Student loans
  • Mortgage loans

Have a variety of different types of credit is an advantage of maximizing overall credit scores than just having one type of credit such as credit card credit:

  • Having a variety of different type of credit tradelines creates a stronger credit profile

Credit Inquiries On Credit Report


There are two types of credit inquiries:

  1. Hard Pull
  2. Soft Pull

Credit Inquiries on a consumer credit report have a 10% impact on consumer credit scores.

  • The number of inquiries a consumer has on his or her credit report will have a 10% impact on their credits scores
  • This is credit inquiries in a six month period window
  • Every hard credit inquiry will negatively impact a consumer’s credit score
  • The maximum number of credit inquiries that will  reduce the consumer’s credit score is 10
  • For example, 11 or more credit inquiries within a six month window period will have the same negative results as the 10 inquiries
  • Each credit inquiry can drop a consumer’s credit scores by two to five points for a maximum of 25 points for ten or more inquiries

If consumer runs their own credit reports or has a mortgage company run a soft pull, that will have no negative impact on credit scores.

How To Raise Credit Scores To Qualify For Mortgage

Every mortgage loan program has a minimum credit score requirement.

Here are the minimum credit score requirements to qualify for home loans:

  • To Qualify For 3.5% down payment FHA Loans, HUD, the parent of FHA, requires 580
  • There are no minimum credit score requirements for VA Loans
  • However, to get an approve/eligible per Automated Underwriting System Findings on VA Loans, borrowers should have at least a 580 credit score
  • To qualify for USDA Loans, borrowers should have at least a 640 credit score
  • To qualify for NON-QM Loans, borrowers should have at least a 640 credit score:
  • 680 credit scores will require less of a down payment versus lower credit scores
  • Fannie Mae and/or Freddie Mac require a 620 credit score on conventional loans
  • Jumbo Mortgages require a 700 credit score with 20% down payment
  • Jumbo Mortgage Loans with 10% down payment requires a 740 credit score
  • Condotel and Non-Warrantable portfolio loans require a 680 credit score

Please click on this BLOG ON HOW TO RAISE YOUR CREDIT SCORES TO QUALIFY FOR MORTGAGE for tips on how to boost your credit scores to qualify for home loans.

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