Ever wonder how they come up with your credit score
Your credit rating can have the single most important impact on your ability to buy Northern Virginia Real Estate and on your ultimate monthly payment. A slight increase in the interest rate that you pay could add tens of thousands of dollars to your payments over the life of a loan. If you are confused as to what factors contribute to your credit rating, you have plenty of company. Consumers have only had full access to their credit rankings for a short period of time, so people are just starting to learn how those scores are established.
The three national credit-scoring companies each use their own proprietary scoring models. Let's examine the most widely used one from Fair, Isaac Company also known as FICO, which was the first industry model used in the industry by TRW, now know as Experian, a leading credit reporting agency. The FICO model gives approximate weights to the following categories in your credit records and has the greatest impact on your ability to buy Northern Virginia Real Estate:
Payment History (35%) Most consumers believe that if they've paid their bills on time, they have little to worry about. But don't bank on it. This part of the score carries the highest weighting, but it's unfortunately the one that contains the most errors, including posting errors by the credit reporting companies. Errors on your credit file that haven't been corrected can cost you precious score points without your knowing it. For this reason, you should check your credit report with all three national credit agencies every single year.
Amount Owed (30%) This rates the types and number of accounts, total open accounts and distribution of debts among accounts. The rating here is based not only on the amount of credit available to you on open lines, but also on how much of that credit you've accessed. A majority of accounts with high balances may count against you. Any creditor looking at this information would also want to compare your income to the amount of debt you currently have. The higher the ratio of these two, the potentially higher financial risk you may pose to a lender.
Length of Credit History (15%) The more time the positive credit history on an account, the higher the score. That's why if you decide to close out credit accounts, it may be wise to close the newer accounts and keep the older ones with a longer positive track record.
Newer Credit (10%) Opening several accounts over a relatively short time likely will reduce your score. It's a potential red flag to creditors to see many accounts, especially credit cards, opened within a short period of time. It could signal that you anticipate an income shortage and are preparing by obtaining credit to live on. A score can even be affected if the borrower transfers a balance to a new lower-interest-rate credit card.
Credit Mix (10%) Your combination of credit cards, retail accounts, finance company accounts, installment loans and mortgage loans. A good mix of types of accounts is good here, whereas too many of one type could shave points off the credit score.
Understanding your credit score is just on part of Buying a Home in Northern Virginia We hope that this information has shed some light on how credit bureaus calculate your score. There are numerous Northern Virginia Home Buying Guides available for you. Select the one that is right for you.
The Earl of Real Estate - Robert Earl is a licensed real estate professional & Real Estate Coach based in the Northern Virginia Real Estate Marketplace. Robert has compiled a list of The 77 Most Affordable Northern Virginia Homes for Sale as a free service to Northern Virginia Real Estate Buyers & Seller.
Published March 14th, 2007
Filed in Business, Real Estate
