Credit Score - 5 Key Components

by: Leslie Collins - 3/2007
Buying a home and need a loan? Well fact is, the better your credit score the better the interest rate you'll be offered which means the lowest overall payment. It's that easy. If you want to skip this article you can get your free credit score here. Credit Repair Links Understanding Your Credit Score How Bad Credit Affects You Getting Credit After Foreclosure Consequences of Bad Credit How to Increase Your Credit Score Credit Repair Program Free Credit Report Why Use Professional Credit Repair Service? First Time Mortgage Bad Credit Bad Credit Home Loan Refinance Most people don't think about their credit score until right before they apply for a loan, which can be a big mistake. It's not a big deal if you have good credit. On the other hand, if you have lousy credit or don't have a clue what your credit profile is then it could be a problem. You'll end up getting a lousy interest rate and paying lot's more. Good for the mortgage man, not you. Enough preaching…here's what credit bureau's look at: Payment history, Amounts owed, Length of credit history, new credit and Types of credit. These components are weighted differently. That is "payment history" is viewed as being a bit more important than say "type of credit".

Variations in Payments Based on Credit Score

*Based on a $219,000 loan for 30 years fixed rate
FICO Score Interest Rate Monthly Payment Overall Interest Paid
760-850 6.37% $1,365 $272,400
700-759 6.59% $1,397 $283,920
680-699 6.77% $1,423 $293,280
660-679 6.98% $1,454 $304,440
640-659 7.41% $1,517 $327,120
620-639 7.96% $1,600 $357,000

Payment History

This makes up for about 35% of you credit score. This part of the credit report examines your month-to-month status regarding repayment on debts, like revolving credit cards or auto loans. For example on a 60 month car loan if you miss a payment this report is where that missed payment will stick out like a sore thumb. Usually it'll report out in 30-60-90 day "late" increments.

Amounts Owed

This is weighted at about 30% of your credit score. Generally you want to keep a sane balance owed to limit ratio. Try to keep what you owe to no more than 25% of the cards limit. If the limit of the card is $5000 keep the balance owed no more than $1250. If you can pay it off every month and carry no balance.

Length of Credit History

This is weighted at about 15% of your credit score. The longer your accounts age the better because it shows your likelihood and willingness to repay your debts. The higher the average age of your accounts, the better… so try not to open new accounts just before applying for a loan. You'll lower your average age of your accounts. It's simply amazing how much money you can save and how simple it is to get the best mortgage interest by simply paying attention to there credit score at the right time.

Type of Credit and New Credit

These are both weighted at about 10% of your credit score. Types of credit can be types of credit used (installment, revolving, consumer finance), while new credit seeks to find any recently opened accounts that may influence the average length of accounts. It's amazing how very small fluctuations in interest rates can result in the difference in thousands and thousands of dollars spent over the life of a mortgage. Many times, by paying attention to your credit score, and following simple rules like not opening multiple accounts just before applying for a loan, can save you big money. Applying online with a solid experienced company like E-LOAN, Inc. - Mortgage/Auto/Home Equity Lending is an easy way to start the mortgage process online - Mortgage, Home Equity, Pre-Approval and Refinance.


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