A credit score is a snapshot of a person's individual credit risk at at particular point in time. There are about five main criteria that is considered when your credit is being evaluated such as: Payment History, Amounts Owed, Length of Credit History, New Credit, Types of Credit Used.
Scores are calculated with different percentage points given to each group, which are only approximates and vary per person.
For instance...
Payment history: 35%, Amounts Owed: 30%, Length of Credit History:15%, New Credit:10%, Types of Credit in Use: 10%
The factors, and the importance of each one, depends on the overall information on file. Multiple factors are evaluated on each category or tradeline, including the type of account, revolving (R), installment (I), open (O), mortgage (M).
The timing of negative information is important. A recent thirty day delinquency can lower a score more than a charge-off two years before. All updates and changes to an individual's credit file are considered when calculating the next credit score.
Inquires are also an indicator of credit risk. Inquiries have a small impact on credit scores, although the more inquiries that are on a file, the more likely that a borrower may not have paid as agreed. The stronger indicators of future performance such as past payment history and use of credit can offset inquiries, so if you have a good payment history and are responsible with your credit it can positively affect your score, even if you have multiple inquiries.
An important factor to remember when buying a home or auto is that multiple inquiries that can occur as a result of shopping for rates on an auto or home loan are "bundled" to avoid negative impact. This allows you to "shop" for the best mortgage product and rate, just like you shop for a home...the best one that meets your needs and financial situation!
A FICO score will ignore all auto or mortgage related inquiries that occur in the previous thirty day (30) period. Prior to that buffer period, the scoring also notes when earlier inquiries were made and counts back fourteen (14) days from each one. In any fourteen (14) day segment scoring counts all auto or mortgage inquires as just one inquiry.
FICO scores are calculated on the last twelve (12) months, although inquiries form the last two years will show on a credit report.
Some advice to improve your score...
Pay your bills on time, keep balances low on credit cards and other revolving credit, pay off debt rather than move it around, apply for and open new credit accounts only as needed.
If you want more information on obtaining a mortgage qualificaton we can connect you with various lenders that can discuss the mortgage qualification process with you at length. Call or email us for further details.
Camille Taylor
Your Neighborhood Real Estate Broker with World Wide Connections!