Homebuyer Tips

Top 5 Factors That Impact Your Credit Score

Minor changes in your credit structure can impact your credit score enough to affect your ability to qualify for a mortgage. Monitoring your credit, creating good financial habits, and remembering these factors will help you build or improve your credit score.

1. Your Payment History

Your payment history is the most important credit scoring factor – accounting for 35% of the total score. A pattern of late payment history can have a negative impact on your credit score. This is part of the information lenders use to predict the likelihood that you’ll repay your debt. It’s also much harder to bring a score up once it’s lowered due to late payments. Always do your best to keep those payments coming on time.

2. Your Debt

30% of your total credit score comes from what you owe and how much of your total available credit has been used. Additionally, using more than 30% of your available credit is a negative indicator to creditors. If credit utilization is lowering your score and you have credit card debt, begin paying it off.

3. Your Credit History Length

The age of your oldest account, the average age of accounts on your credit report, and how long it’s been since you have used the accounts on your credit report are all factors that play a role in 15% of your score. If you currently have cards that you’re not using, place a small recurring charge on them such as a phone bill or app subscription to help keep the card active while keeping your credit utilization low.

4. Credit Mix

Your mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans are also considered and play a role in 10% of your score. While having a variety of different account types may benefit your credit score, it’s not necessary to have one of each. However, maintaining a diverse range of credit accounts that have been handled responsibly shows lenders you’re able to handle a variety of financial obligations.

5. Hard Credit Inquiries and New Credit

The number of credit accounts you’ve opened recently, as well as the number of hard inquiries lenders make when you apply for credit, account for 10% of your score. Although hard inquiries are unlikely to affect your score more than a few points, they can stay on your report for up to 2 years. Avoid applying or opening several lines of credit at once, especially if you don’t have a long credit history.

Bottom Line

Credit scores matter. If your credit score is keeping you from buying a home, we recommend calling the FHA for assistance at 1-800-CALL-FHA. Ask for a referral to an FHA-approved housing counselor who can help you learn how to raise your credit score.

Questions? We’re always happy to help. Click here to connect with one of our mortgage experts.

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