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The 5 Factors of Credit Scoring
Transcript of The 5 Factors of Credit Scoring
Outstanding Credit Balances
marks the ratio
between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible,
and definitely below 30%
of the available credit
limit when trying to
purchase a home.
Paying debt on time
and in full has the greatest
positive impact on your credit score. Late payments, judgments and charge-offs all have a negative impact. Missing a high payment
will have a more severe impact than missing a low payment. Delinquencies that have
occurred in the last two
years carry more weight
than older items.
of the credit score
indicates the length of
time since a particular credit line was established. A seasoned borrower will always be stronger in
A mix of auto
loans, credit cards,
and mortgages is
more positive than
a concentration of
debt from credit
This percentage of
the credit score quantifies
the number of inquiries made
on a consumer’s credit within a
six-month period. Each hard inquiry
can cost from two to 25 points on a
credit score, but the maximum number
of inquiries that will reduce the score is ten. In other words, 11 or more inquiries within a six-month period will have no further impact on the borrower’s credit score. Note that if you run a credit
report on yourself, it will have
no effect on your score.
Credit scores are impacted by five factors. Points are awarded for each component, with a high score being the most favorable. A high score is generally considered anything above 700, while the maximum score that can be awarded is 850. Credit scores can be checked through the three following credit bureaus: Equifax, Experian, and TransUnion.
Remember that the credit score is a computerized calculation. Personal factors are not taken into consideration when a credit report is generated. It is merely a snapshot of today’s credit profile for any given borrower, and it can fluctuate dramatically within the course of a week.
*Important Note: Paying off an old collection (anything more than 18 months old) may have a detrimental impact on a borrower’s credit score. Therefore, it is usually best to pay it off at closing rather than before applying for a loan.*
Slater Thomson Team | Intero Real Estate Services
408.357.5720 | SlaterThomson.com