Making Sense of Credit Reports


What is a Credit Score?

Fair Isaac Corp., more commonly known as FICO, came up with an unbiased way to determine a person’s eligibility to borrow money.  Score range from 300-850.  A higher score indicates a borrower with lower risk.  Credit tells a story about a person.  Scores are used not only for determining approval and rates on mortgages but also on all credit related approvals and even insurance rates.

What factors affect my Credit Score?

  • Late Payments
    • Recentness – How recent was the late payment?
    • Frequency – How many times  late payments?
    • Severity – How late was the payment? 30, 60, 90, or 120 days?
  • Balances
    • Keep balances on revolving debt low.  Less than 50% is recommended.
    • Over 50% of available limit is negative for scores.
    • Over 75$ of available limit is severely negative for scores.
  • Combined Balances on Revolving Debts
    • Credit available on all accounts compared to credit used.
  • Collections and Charge Offs
  • Inquiries in the last 12 Months

What makes up my Credit Score?

  • 35% – Payment History
  • 30% – Amounts Owed/Balances
  • 15% – Length of Credit History
  • 10% – New Credit
  • 10% – Types of Credit Used

How do I Improve my Credit Score?

  1. Have a tri-merged credit report printed.
  2. Review it with your Loan Officer.
  3. Have incorrect or erroneous information removed.
  4. Do not pay collections until after closing.  Paying off collections can initially hurt your Credit Score by “waking up” collections that have not been reported recently.
  5. Pay down revolving balances down to at least 50%.
  6. Make payments on time; especially your mortgage.  (One 30 day late can affect a credit score by as much as 100 points)
  7. Avoid finance companies and low introductory credit cards.  All you need is one or two credit cards that work everywhere.
  8. Minimize credit inquiries. (Multiple mortgage inquiries within 30 days is OK)
  9. You may add an explanation, up to 100 words, to any account on your credit report.  If the credit bureau deems it legitimate, the explanation will be added to the report.
  10. After bankruptcy, open a secure credit card.

*** To update incorrect information on a credit report, you must get a letter from the institution you have a dispute with.  The letter must reference the account number and that the account is satisfied with no balance due.