5 Factors that Affect Your Credit Score
Scores generally range between 400 and 850. Scores above 580 are considered desirable for obtaining a mortgage. These factors will affect your score:
1. Your Payment History. Whether you paid credit card obligations on time.
2. How Much You Owe. Owing a great deal of money on numerous accounts can indicate that you are overextended.
3. The Length of Your Credit History. In general, the longer the better.
4. How Much New Credit You Have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay promptly.
5. The Types of Credit You Use. Generally, it’s desirable to have more than one type of credit—installment loans, credit cards, and a mortgage, for example.
6 Ways To Assure Good Credit
1. Order your credit report to find out if you have good credit or if you need to take steps to improve it
2. Correct any errors you may find on your credit report
3. Make loan payments on time every month
4. Take control of your credit by reducing your debt, using credit cards wisely, and only applying for credit you really need
5. Create a nontraditional credit history if you do not have any loans or credit cards
6. Use a budget, a checking account, and a savings account to manage your money
Source: Fannie Mae Foundation
What Score Do I Need to Qualify for a Mortgage?
Most lenders require that each borrower have at least a 580 credit score to qualify for a loan. Lenders usually pull scores from all three major credit bureaus and use the middle score for qualifying purposes. With a score below 580, lenders usually charge a higher rate and require a downpayment. Other compensating factors can be considered to offset lower credit scores. Lenders tend not to offer loans to borrowers with a score below 500, regardless of the downpayment.
How Can I Obtain a Credit Report?
You can obtain a free copy of a credit report from all three major credit bureaus at www.AnnualCreditReport.com. You may pull a report from each bureau once without a charge. This credit pull does not produce a credit score.
You may obtain a free report with a credit score from Experian at www.FreeCreditReport.com.
How Can I Build a Nontraditional Credit History?
Keep copies of bills you pay, including your rent, telephone, electricity, cable television, gas, and insurance.
Keep copies of canceled checks used to pay bills.
Ask your landlord, the telephone company, and the gas and electric company to write you a letter. Ask them to include how long you have been a customer and how well you’ve paid your bills every month.
Show your bills, payments, and letters to lenders to prove that you pay your bills on time every month. A record that shows at least two years of regular payments is ideal.
Although overuse of credit cards can get people into debt trouble, using one or two credit cards wisely is a good way to establish a credit history. Consider asking your bank if it can issue you a ‘secured’ credit card, backed by you savings account to help you establish credit. Make the credit card payments on time every month to show you can handle credit well. You can also apply for a credit card on your own, directly from a department store or a credit card company.
If you are married, make sure some credit accounts are in your own name as well as your spouse’s name, so you will both build a credit history.
Source: Fannie Mae Foundation
How Can I Control My Debt?
Pay loans first.
Pay off credit cards every month.
Remind yourself that credit cards are loans.
Charge less than the maximum amount available on your credit card.
Only apply for credit you need.
if you feel you can wisely use a credit card, choose one with a low interest rate and no annual fees.
Try to pay more than the minimum due each month.
Look for ways to cut your expenses or increase your income.
Keep track of bills and past-due notices.
Source: Fannie Mae Foundation
How Can I Get Help with My Credit?
If you are having problems paying your debts, call your creditors to discuss your options before you miss a payment.
If you own money to many businesses, it may be time for expert help. Consider going to a nonprofit credit-counseling organization. Make sure you research any organization thoroughly as fraud is common.
Stay away from ‘credit-repair’ companies. So called credit-repair companies that offer to fix your credit history for a fee often give empty promises. Only you can repair your bad credit by repaying your debts and paying your current bills on time.
Source: Fannie Mae Foundation
