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The Mysterious Credit Score

Almost everyone who buys a home will have a mortgage for that home. Very few people can pay cash for a house. And if you’re going to see how much of a mortgage you qualify for, one of the first things people want to know is what their credit score is. Now a mortgage company or bank will look at all kinds of other factors besides your credit score, but if you have a poor credit score, that could take you out of the running for qualifying for anything at all. So, let’s look at the mysterious make up of the credit score.

Firstly, the makeup of the credit score takes into account several factors:

  • 35% is based on payment history
  • 30% is based on amounts owed
  • 15% is based on credit history
  • 10% is based on new credit
  • 10% is based on types of credit used

Keep in mind opening new accounts can bring your score down and closing old accounts can do the same. Also if your accounts all have high balances, or to say it another way, if your accounts are all maxed out, this too can negatively affect your score.

The three bureaus that report credit are Trans Union, Equifax and Experian and they each have a slightly different formula they use to judge your credit worthiness. Also it is easy to get false information on your score, especially if you have a common name or due to human error. Because of this, it is wise to check your credit report once a year or so.

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