Understanding Credit Scores And The Affect On Your Interest Rate

In the mortgage banking world, credit scores make or break a loan.  This is a mortgage scoring system developed by the credit reporting agencies that predict your ability to repay the mortgage you are applying for based on your past payment patterns.  Other factors that make up your "score" are the amount of credit inquiries in the past 6 months, the amount of outstanding debt as a percentage of the total credit line and the total amount of available credit.  Listed below is a brief discussion of each of these.

There are lenders who do not use the scoring system to the degree that most do.  If your credit report contains errors, you may have to find a lender who does not use scoring that heavily.  In addition, since many credit reports DO contain errors, it is in your best interest to periodically review your report and have errors corrected.

To give you a general idea, we have included the scoring portion of a generic credit report.  You will not only notice the scores, but also the factors which lowered the score.  We have also included the items that can bring your score down or up.


 

           *****   Borrower:  Public, John Q.  ***** 

TU Score:  (627)           Reason:  (22) (16) (28) (4) 

EXP Score:  (641)           Reason:  (22) (16) (28) (32) 

EQX Score:  (620)          Reason:  (22) (16) (28) (32) 
 


 
 

Reason

EXP

TU

EQX

Amount Owed on accounts is too high

1

1

1

Delinquency on Accounts

2

2

2

Too few bank revolving accounts

3

N/A

3

Too many bank revolving accounts

4

N/A

4

Too many accounts with balances

5

5

5

Consumer Finance accounts

6

6

6

Account payment history too new to rate

7

7

7

Too many recent inquiries in last 12 months

8

8

8

Too many accounts opened in last 12 months

9

9

9

Portion of balances to credit limit too high

10

10

10

Amount owed on revolving accounts is too high

11

11

11

Length of revolving credit history is too short

12

12

12

Time since delinquent is too recent of unknown

13

13

13

Length of credit history is too short

14

14

14

Lack of recent bank revolving information

15

15

15

Lack of recent revolving account information

16

16

16

No recent non-mortgage balance information

17

17

17

Number of accounts with delinquency

18

18

18

Too few account currently paid as agreed

19

27

19

Time since derogatory public record or collection

20

20

20

Amount past due on accounts

21

21

21

Serious delinquency, collection or public record

22

22

22

Too many bank or accounts with balances

N/A

N/A

23

No recent revolving balances

24

24

24

Proportion of loan balance to loan amount is too high

33

3

33

Lack of recent installment loan information

32

4

32

Date of last inquiry is too recent

N/A

19

N/A

Time since last account opening too short

30

30

30

Number of revolving accounts

26

N/A

26

Number of bank revolving accounts

N/A

26

N/A 

Number of established accounts

28

28

28

No recent bank card balances

N/A

29

N/A

Too few accounts with recent payment information

31

N/A

31

By cross-referencing the numbers shown on the credit report with the items in the table, you can see what caused Mr. Public's scores to go down.  Make sure you ask your mortgage broker or lender what your score is.  With that information you can perform your own credit repair without having to pay someone to do it for you.

Remember, if you believe there is an error in your credit report, contact the credit bureau and dispute the information.  It is wise to obtain a copy of your credit report every year to make sure the information is correct.

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