My credit and how it relates to my loan
We throw the word “credit” around, but do we all really understand what credit is? What credit is based on? How it can be both a benefit and/or detriment?
The answers to these questions will provide you with a better understanding and will also be an excellent guide for you to follow.
There are 5 major categories that determine your score and each has a different percentage of how it is considered in the equation:
- Payment History: 35% of the score is based on the payment history of all of your credit cards and loans which you have been responsible for. The loans can include a car or student loan. Any late payment is recognized and will negatively affect your score.
- Amount that is owed: 30% of the score is based on the total amount that you owe. Special attention is given to the actual percentage of credit that is used on revolving credit cards.
- Length of credit: 15% of the score is based on the amount of time that the account has been open in addition to its frequency of use.
- Types of credit used: 10% of the score represents the “types” of accounts you have, for example revolving or installment.
- New Credit: 10% of the score relates to credit inquiries and the number of recently opened accounts.
As you read #5, you might have now become concerned that your credit could be affected while you are searching for a mortgage with multiple lenders. The good news is that while you are in the process of looking for the right loan, your credit can be pulled multiple times within a 30 day period and it will all be considered as only one transaction.
A few rules to keep in mind: pay your bills on time, keep the balances as low as possible, establish a history of consistent payments over a length of time and limit the amount of new credit cards you open within a short time span. With these guidelines, you will surely be managing your own credit score, producing successful results.