Understanding your credit score is the first step in improving your credit score.  A good credit score is one of the most important factors in determining the mortgage interest rate that you qualify for!  The better your credit history the better the mortgage rate will be that you will get!

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.

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. On the other hand, one out of eight prospective home buyers is faced with the scenario that they may not qualify for the mortgage 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! BEST RATES & TERMS
700-719 Excellent score. DESIRABLE BORROWER
680-699 Good Credit. GOOD SHAPE TO BORROW
660-679 Ok credit. NO OTHER EXCEPTIONS
640-659 Borderline. OK if EVERYTHING ELSE IS STRONG
600-619 Difficult. NEEDS WORK


Your credit score comprises 5 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 collections 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% 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.

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.