What’s in a Credit Score?

Most of us have heard the term “credit score” but what does this mean? Are there things that impact our credit score? Credit is important, but it helps to understand what goes into it. Here are the five major components that contribute to your credit score.

Payment History. This includes your repayment behaviour for the credit that you already have. In addition to reporting the number of credit accounts and different types that you have, and if you have paid them on time. This category also includes all the information on any missed payments if anything is in collections or has been written off. The scoring looks at how late the payments were, how much was owed, and how recently and how often you missed payment.

Credit Used versus Credit Available. Having credit cards or lines of credit being close to their limit affects your credit score negatively. It is important to keep in mind that ideally when applying for financing for a mortgage that lenders like to see less than 50% utilization of your existing credit.

Credit History. This shows lenders how long your oldest and most recent credit accounts have been open. Lenders like to see how responsible you have been with your credit over a length of time.

Public Records. A history of bankruptcy, collections, or other negative public records could be flagged by lenders as “high risk”. If any of these show up on your report, they will impact your score negatively.

Inquiries. Any time your credit is accessed for reasons it is logged on your report as an inquiry. There are two types of inquiries Soft or Hard pulls. Soft pulls do not impact your credit. This is when an account request or score is requested for something like a credit. Hard pulls however, do impact your score. When applying for loans, too many hits to your credit score can be an indication of financial troubles. Keep in mind, only several recent hard hits combined with other warning signs on file will lead to a large decline on a credit score.

After you decide you’re ready to meet with a mortgage expert, this is when your credit score will become important, if at that time you need some credit coaching the mortgage expert will be there to help provide some tips to improve your current situation if needed.

I have been working with clients for over 17 years and have happily coached them into better credit situations and ensured that they have the right loan that meets their financial needs. If credit or financial guidance is something that you need, make sure to contact my office so we can begin the process to accomplishing your goals.