Your credit score takes into account your current and past debts and your payment history. It will help determine if you are approved for a loan and what interest rate you will be charged. The higher your credit score, the better your credit rating, and the lower your interest rate.
1. Payment History
By simply paying your bills on time, you will do well in this category. Paying on time can mean the difference between an average and an exceptional credit score.
2. Type of Debt
There are two main categories of debt: installment debt and revolving debt. Installment debt is a loan that is repaid by the borrower over a set period of time in regular (usually monthly) payments that include principal and interest. Examples of installment debt include an auto loan or mortgage.
Revolving debt is money owed to a creditor who sets your monthly payments based on your current balance. Credit cards are an example of revolving debt. A good credit mix would include both types of debt.
3. Amount of Debt
The amount you owe is compared to your credit limit; on an individual account basis as well as an overall basis. Pay attention to your balances as they relate to your credit limits, especially on revolving debt.
4. Length of Credit History
Keeping your old accounts open and active may help to show a more established credit history. Opening and closing credit accounts frequently may have negative impact on your credit score.
5. Inquiries and New Debt
Every time you apply for credit, an inquiry will appear on your credit report. Excessively shopping for credit and too many inquiries in a short period of time can hurt your score. Most often, when shopping a mortgage, multiple mortgage-related inquiries within a short timeframe will be counted as one inquiry.
Remember: Your credit will be verified throughout the process. Maintaining a stable credit picture through the close of your loan will help ensure you close without incident.
Contact me today to learn more!
Terry Roberts, USMC Veteran Sr. Mortgage Broker NMLS 397987 E Mortgage Capital, NMLS 1416824
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