Understanding your credit score is the first step in improving your credit score – and a good credit score is one of the most important factors in determining the mortgage interest rate you qualify for!  Bottom line – the better your credit history the better the mortgage rate you will get!


What the credit scoring model seeks to quantify is how likely you are to pay off your debt without being more than 90 days late on a payment at any time in the future.

Credit scores can range between 300 and 900. The higher your score is, the less likely you are to default on your loan. Only one out of approximately 1,300 people has a credit score of 800. These are clients who walk away with the best interest rates. On the other hand, one out of eight prospective home buyers is faced with the scenario that they may not qualify for the loan they want because they have a lower score, between 500 and 600.

Here is a simple chart to give you the tiering structure and what it means to the lender


720-900 You are at the top of   the best rates and terms offered to you.
700-719 Excellent score. You   are very desirable borrower.
680-699 Good Credit. You should   be in good shape to buy.
660-679 Ok credit. Don’t look   for other exceptions.
640-659 Borderline. Ok if   everything else is strong.
620-639 Weak. The rest of your   life must be perfect.
600-619 Difficult. Needs some   work, or a special program.
Below 600 Trouble! Try to fix up   your credit immediately!


Your credit score comprises five factors and these are listed below in order of importance, just as a lender will see it.

Payment History: 35% Impact.  Paying debt on time and in full has a positive impact however late payments, judgments and charge-offs have a very negative impact. Missing a high payment has a more severe impact that missing a low payment.

Outstanding Credit Balances: 30% Impact. The ratio marking the difference between your outstanding balance and your available credit is important here. Ideally, you should keep your balance below 30 percent of your available credit limit.

Credit History: 15% Impact. This marks the length of time since a particular credit line was established. A seasoned borrower is stronger in this area.

Type of Credit: 10% Impact. A mix of auto loans, credit cards, and mortgages is more positive than a concentration of debt from credit cards only.

Inquiries: 10% Impact. This quantifies the number of inquiries that have been made on your credit history within a six month period. Each hard inquiry can cost from two to 50 points on a credit score, but the maximum number of inquiries that will reduce the score is 10. Eleven or more inquiries in a six-month period will have no further impact on your credit score. We recommend that you have no more than 5 per year.

One thing that is important to remember is that the computer is not taking any personal factors into consideration when it calculates your score. When lenders run your credit report, it is simply today’s snapshot of your credit profile. This can fluctuate dramatically within the course of a week, depending on your own activities. Be aware of this when you go out on a shopping spree. You need to make sure you are not creating a negative impact on your score while the lender is reviewing it.