This BLOG On 5 Factors That Affect Credit Scores For Mortgage Borrowers Was PUBLISHED On June 30th, 2019Credit scores are probably the second most important factors that affect credit scores when qualifying for a residential mortgage loan. Credit scores also play an impact on mortgage rates. The higher the credit scores, the lower the rates.
The first most important factors that affect credit scores is income
You can have the best credit scores in the world but without documented income, you are dead under water
No lender in this planet will give you a mortgage loan approval without documented income
Credit Scores Determine Mortgage Qualification And Interest Rates
However, credit, credit history, payment history, and credit scores are extremely important and it is your credit scores that will determine whether or not you qualify for a mortgage now or whether you need to wait until you boost your credit scores.
Mortgage loan programs have minimum credit score requirements
For example, if you want to qualify for a 3.5% down payment home purchase FHA loan, you would need a minimum of a 580 credit score
If your credit scores fall between 500 and 579 FICO, you would need a 10% down payment under HUD’s lending guidelines
HUD is the parent of the Federal Housing Administration, commonly referred to as FHA
Fannie Mae and Freddie Mac are the two mortgage giants that set conventional mortgage guidelines
The minimum credit scores you need to qualify for a conventional loan is 620 FICO
Minimum credit scores for Jumbo mortgages are normally 700 FICO. There are 5 factors that impact credit scores
Payment History Is Most Important Factors That Affect Credit Scores
Your payment history has a 35% impact on your credit scores.
Paying your monthly debt on time has the largest benefit and major impact on your overall credit scores
One late payment on one of your credit history can plummet your credit scores by more than 50 points
Judgments and charge off as well as collection accounts can have long term negative impacts on your credit scores
Also, being late on a high minimum payment will have a greater negative impact on your credit scores than being late on a low minimum payment
The good news is that the older a late payment is, the less of an impact it will have on the person’s credit scores
A late payment that has aged over 2 years will have less of an impact than a late payment that is two months old.
Outstanding Credit Balances Of 10% Or Under Will Have Positive Impact On Credit Scores
To maximize your credit scores, your outstanding balance should be at least at 20% or less than the total available credit limit.
For example, if your credit limit on your Capital One Credit Card is $1,000, you should have no more than a $100 balance on your credit card balance to have the highest available credit score
If possible, you should have a lower credit balance
Your outstanding credit balance has a 30% impact on your credit scores
Credit History Has 15% Impact On Credit Scores
Your credit history has a 15% impact on your credit scores.
Your credit scores consist of the total length of time you have had an individual credit card or credit tradeline
The longer you have had a credit trade line, the stronger borrower a creditor will view you as
That is why it is strongly not recommended that you close out an active credit trade line
This holds true even though you do not use it
Credit History Has 15% Impact On Your Overall Credit Scores
Your overall credit history has a 15% impact on your overall credit scores.
Those with a longer credit history will have a stronger positive impact on their credit scores than those who recently established credit
Both positive and negative credit will be reported on your credit report
When you go through a period of negative credit, it will be reflected on your credit report and it will really negatively impact your credit scores
However, as it ages, the negative credit derogatory items will have less and less of an impact of your credit report
All negative items will remain on your credit report for a period of 7 years and need to be removed by federal law
Bankruptcies remain on your credit report for a period for ten years.
The Type Of Credit You Have Has 10% Impact On Your Credit Report
Having different types of credit types will have a positive impact on your credit report.
For example, if you have a combination of credit cards, installment loans, auto loans, home loans, you will have a more positive impact on your credit scores than if you were just to have credit cards on your credit report
New Credit Is 10% Of The 5 Factors That Affect Credit Scores
New credit has a 10% impact on your credit scores.
When consumers apply for new credit, creditors will run a hard credit inquiry
Most hard inquiries will hit consumers negatively
A hard inquiry can drop a consumer credit score by 2 to 5 FICO points
The good news is that the drop is temporary
Credit scores on a hard inquiry drop will rebound in 30 to 90 days.
Credit Inquiries Have 10% Impact On Credit Scores
Credit inquiries have extremely negative factors on a person’s credit scores. Each credit inquiry can affect a consumer’s credit scores by 2 to 30 FICO points. Credit inquiries have a 10% impact on one’s credit scores.
This BLOG On The 5 Factors That Affect Credit Scores Was UPDATED On June 30th, 2019.
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