Where Your Credit Score Comes From

Phoenix Arizona Mortgage Credit

It has been said that credit is the 8th wonder of the world.   In some ways it makes sense to categorize credit scoring as a mystery.  For example, why would someones score go down if they pay a credit card off?  Believe it or not, there is a very logical reason behind that!  As your Arizona Mortgage Lender I want to help you understand the mystery we call “your credit score.”

A credit score (when broken down into it’s basic components) makes quite a bit of sense.  Understanding the dynamics behind how a credit score is generated can help an Arizona home-buyer maximize their experience when applying for Phoenix home mortgage.   Let’s jump in and take a look at exactly what a credit score is made from.

The 5 Major Components of Your Credit Score:

1. PAYMENT HISTORY (35% of a persons credit score) – This category includes payment history on different accounts on a borrowers credit report.  It also factors in collection accounts and judgments. The payment history category also scores an individual based on the details of the late payments that show on their credit report (how late, how many times were the payments, how much was owed and how recent were the late payments).

2. AMOUNTS OWED (30% of a persons credit score) – A individuals credit score is measured on a few different areas related to amounts owed.  The amounts owed on all types of accounts along with the amounts owed on different types of accounts and the amount of credit used on revolving accounts determines how someone is scored relative to this category.

3. LENGTH OF CREDIT HISTORY (15% of a persons credit score) – An individual is measured by the length of time their overall credit has been established, the length of time specific/different types of credit have been established and how long it has been since different types of credit have been used.

4. NEW CREDIT AND INQUIRIES (10% of a persons credit score) –  What types of credit  accounts one has, how many of each different type of account are on the credit report, and how many recent inquiries are present have determine this section of a credit score.

5. TYPES OF CREDIT (10% of a persons credit score) – This section of a credit score is measured by how many new accounts someone has and how long it has been since they opened a new account.

As you can see, a credit score actually does come from somewhere and there is a method behind the FICO madness. While there are several different agencies or credit bureaus out there, the three most common and most accepted are:

1. TransUnion
2. Equifax
3. Experian

Evaluating a client’s credit is one of the most important aspects of my job.  After all, when it comes to credit and  mortgage guidelines there is more to it than just a number or a “middle score.”  Arizona Mortgage Guidelines look at much more than just a buyers credit score.  In fact, every Phoenix area lender  looks at:

1. Late payments/payment performance (late means more than 30 days late)
2. Bankruptcies
3. Judgments
4. Liens
5. Short Sales
6. Foreclosures
7. Loan Modifications
8. Collection Accounts
9. Accounts showing that an applicant has filed a dispute relative to a trade line
10. The length of time an applicant has had and established credit
11. The number of trade lines an applicant has
12. The amount of monthly debt an applicant has

As your Phoenix Mortgage Lender, I am always here to help.  Please call or email me today with your credit related questions.  You may also APPLY NOW.

By Jeremy House

 

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