What is Mortgage Credit Scoring?
Low mortgage credit scoring means higher mortgage loan costs and higher mortgage rates. If you are planning on buying a home or planning on refinancing in the near future, you need to pay attention to your mortgage credit scores. Optimizing your mortgage credit scores can save you thousands of dollars and will assure you a great mortgage rate. There are several factors that will impact your mortgage credit scores.
Factors Affecting Mortgage Credit Scoring
The first factor that influences your mortgage credit scores are your overall payment history. 35% of your mortgage credit scoring is calculated on paying your debt on a timely basis. Paying your monthly debt obligations on time and having a history of paying your monthly debt obligations on time will have the greatest positive impact on your mortgage credit scores. Having late payments, collections, tax-liens, judgments, and charge offs will have negative impact on your mortgage credit scores. As time goes by, these derogatories will have less of an impact. If you are recently late on a monthly debt payment, do not be surprised in your mortgage credit scores dropping by at least 50 points. Being late on a higher monthly payment will have more negative impact than being late on a lower monthly payment.
Outstanding Credit Balances Affect Mortgage Credit Scoring
30% of your mortgage credit scoring are influenced by outstanding credit balances. This factor is derived by the amount of your credit balance divided by the credit limit. If you have a $1,000 credit limit credit card and have a $990 credit balance, this will reflect negatively on your mortgage credit scores. Never have a zero balance either. Always have a small balance like $10 dollars. Reason being is that you need a factoring number and if you divide the $1000 credit limit to a zero balance, you will get a zero. However, if you divide $10 dollars by $1,000, you will get a small factoring number. The rule is that the smaller the factoring number the better. If you cannot have such a small balance, then try to keep your credit balances at or below the 30% mark.
Credit History Affect Mortgage Credit Scoring
15% of your mortgage credit scores is derived by your credit history. The credit reporting agencies takes into effect the length of time a specific credit tradeline was established. Someone who had a credit history for ten years will definitely score higher than someone who only established credit a year or two ago.
Type of Credit Affect Mortgage Credit Scoring
10% of your mortgage credit scores is impacted by the type of credit you have on your credit record. The credit reporting agencies is looking for credit diversification such as having a combination of credit cards, home loans, auto loans, student loans, installment loans, and other loans. Having various types of credit will be more of a positive impact than having one type of credit such as credit cards.
Credit Inquiries Affect Mortgage Credit Scoring
10% of your mortgage credit scores profile is derived by credit inquiries. If a creditor does a credit hard pull on you during a six month period, your mortgage credit scores will drop. A hard credit pull are credit inquiries from credit card companies, department store companies, and installment loan companies. Each hard pull credit inquiry can drop your credit score from 5 points to more than 30 points. It is not wise to apply for a bunch of secured credit cards all at once. The maximum limit on hard pull credit inquiries is 10 hard pull credit inquiries. If you applied for 10 unsecured credit cards, your mortgage credit scores already took the maximum negative impact so it does not matter whether you have 11 or 50 hard pull inquiries. Be advised that these hard pull credit inquiries will be on your credit report for some time and lenders view hard pull credit inquiries extremely unfavorably.