Mission Statement:
"To invest in our future and elevate our financial well-being"
Credit scores are comprised of five factors. Points are awarded for each component, and a high score is most favorable. The factors are listed below in order of importance.
1. PAYMENT HISTORY - 35% IMPACT
Paying debt on time and in full has the greatest positive impact on your credit score. Late payments, judgments and charge-offs all have a negative impact. Missing a high payment will have a more severe impact than missing a low payment, and delinquencies that have occurred in the last two years carry more weight than older items.
2. OUTSTANDING CREDIT BALANCES - 30% IMPACT
This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home.
3. CREDIT HISTORY - 15% IMPACT
This portion of the credit score indicates the length of time since a particular credit line was established. A seasoned borrower will always be stronger in this area.
4. TYPE OF CREDIT - 10% IMPACT
A mix of auto loans, credit cards and mortgages is more positive than a concentration of debt from credit cards only.
5. INQUIRIES - 10% IMPACT
This percentage of the credit score quantifies the number of inquiries made on a consumer's credit within a six-month period. Each hard inquiry can cost from two to 25 points on a credit score, but the maximum number of inquiries that will reduce the score is ten. In other words, 11 or more inquiries within a six-month period will have no further impact on the borrower's credit score. Note that if you run a credit report on yourself, it will have no affect on your score.
Remember that the credit score is a computerized calculation. Personal factors are not taken into consideration when a credit report is generated. It is merely a snapshot of today's credit profile for any given borrower, and it can fluctuate dramatically within the course of a week.
TIPS TO IMPROVE YOUR CREDIT
DON'T PAY OFF COLLECTIONS OR CHARGE-OFFS - Once your loan application has been submitted, don't pay off collections unless the lender specifically asks you to in order to secure the loan. Generally, paying off old collections causes a drop in the credit score. The lender is only looking at the last two years of activity.
DON'T CLOSE CREDIT CARD ACCOUNTS - If you close a credit card account, it can affect your ratio of debt to available credit which has a 30% impact on your credit score. If you really want to close an account, do it after you close your mortgage loan.
DON'T MAX OUT OR OVER CHARGE EXISTING CREDIT CARDS - Running up your credit cards is the fastest way to bring your score down, and it could drop up to 100 points overnight. Once you are engaged in the loan process, try to keep your credit cards below 30% of the available credit limit.
DON'T CONSOLIDATE DEBT TO ONE OR TWO CARDS - Once again, we don't want you to change your ratio of debt to available credit. Likewise, you want to keep beneficial credit history on the books.
DON'T RAISE RED FLAGS TO THE UNDERWRITER - Don't co-sign on another person's loan, or change your name and address. The less activity that occurs while your loan is in process, the better it is.
DO JOIN A CREDIT WATCH PROGRAM - Your bank, credit union or credit card company may be able to provide you with a free credit watch program that can alert you to any changes in your credit report. This can be a safeguard to help you intervene before the underwriter sees a problem.
DO STAY CURRENT ON EXISTING ACCOUNTS - Late payments on your existing mortgage, car payment, or anything else that can be reported to a CRA can cost you dearly. One 30-day late payment can cost anywhere from 30 to 75 points on your credit score.
DO CONTINUE TO USE YOUR CREDIT AS YOU NORMALLY WOULD - Red flags are easily raised within the scoring system.
