Welcome to the HomeInUtah.com Blog

2016-04-04 09:23:49
Components of a Credit Score

Credit scores are used by lenders to measure the credit worthiness of borrowers. While there are several different companies that offer scores, the FICO, Fair Isaacson Corporation, is the model that is used most often.

There are five key components that determine the overall score or rating. The most emphasis, 35% of the overall score, is placed on payment history which reflects whether the borrower paid on time and as agreed by the terms of the credit. Being late, missing payments or going into default would have adverse effects on this part of the score.

FICO score.png

The second largest component, 30%, is credit utilization or the amount owed in relation to amount available. A person might have a $4,000 outstanding balance on available credit of $20,000. This would be a 20% ratio and would be considered acceptable. Owing $15,000 on $20,000 of available credit would be a 75% ratio and would negatively affect this part of the credit score. FICO says people with the best scores average around 7% credit utilization.

The length of time each account has been open and the account’s activity determines 15% of the total credit score. By having a longer credit history, the credit provider has a better indication of the borrower’s long-term financial behavior. Having an open account without activity doesn’t offer a provider much information.

New credit and types of credit each account for 10% of the total score. New credit can adversely affect a score because it is a new obligation without history of how it will affect the borrower’s ability to repay all of their liabilities. Types of credit include both revolving and installment debt. A good mixture of each can indicate less risk for lenders.

The combination of all five areas make up the total score which lenders use to determine credit worthiness. Another confusing issue is that all credit scores are not mortgage credit scores. This particular score determines not only whether the lender will make a mortgage but at what interest rate.

The best place to get your credit score if you’re planning on purchasing a home is from a trusted mortgage professional. This person will be able to suggest things to improve your score if necessary. Buying a home is one of the largest investments in most people’s lives; it is really not a do-it-yourself activity.

 
Blog Archive
2017-08-15 12:32:35
Shorter Term - More Savings

2017-08-08 10:36:28
Home Energy Aware

2017-08-01 14:57:03
Assumptions are an Alternative

2017-07-31 14:15:47
Home Safe Home

2017-07-24 15:34:43
Other People's Money for College

2017-07-12 11:52:23
Family & Friends Mortgage

2017-06-26 15:47:36
Don't Have a CLUE?

2017-06-21 15:10:06
What Can You Expect?

2017-06-19 11:00:46
Emergency Kit for the Car

2017-06-05 12:44:58
Hands-Only CPR

2017-05-29 09:26:16
Must Be This Tall to Ride

2017-05-23 12:28:02
Good Info - Good Decisions

2017-05-23 12:03:56
Reasons to Refinance

2017-05-23 11:27:10
An Alternative to Paying Tax Today

2017-05-22 14:38:05
Would-be Buyers with Student Debt

2017-05-18 13:26:06
An Alternative to Paying Tax Today

2017-05-18 12:59:37
Reasons to Refinance

2017-05-18 12:56:02
Good Info - Good Decisions

2017-05-08 10:41:10
Would-be to Should-be

2017-05-03 07:31:01
Indecision May Cost More

2017-04-09 19:51:20
Lower the Rate - Deduct the Interest

2017-04-05 17:45:27
Rentals are IDEAL

2017-03-30 13:38:28
Important Estate Documents

2017-03-27 13:09:21
Save the Cost of Mortgage Insurance

2017-03-14 13:53:56
Tax Benefits of Home Ownership

Click here to see ALL articles.


Comment on this Article

Your Name:
Your Email:
Comments:
Verify:  Please enter the numbers shown to help eliminate spam.