How Does My Credit Score Affect My Ability To Get A Loan
Posted by Marvin Peck on Thursday, January 21, 2021 at 4:30 PM By Marvin Peck / January 21, 2021 Comment
Are you thinking about buying a home or maybe refinancing your current home? Here are a few of the top questions lenders receive from borrowers about credit.
What makes up my credit score?
1. Payment History - 35%
2. Credit utilization - 30%
3. Length of credit history - 15%
4. Number of inquiries - 10%
5. Types of credit - 10%
What causes my credit score to drop?
~ Maxed out credit cards
~ Missed payments
~ Negative items on your credit report (bankruptcy, collections)
~ Closing out credit card accounts
~ Paying off a loan
~ Credit inquiries
How can I establish good credit?
~ Monitor your credit
~ Keep your oldest, "good" line of credit open
~ Make payments on time
~ Pay more than the minimum
~ Avoid large purchases prior to buying a home
#1: A mix of accounts (student loans, credit cards, auto loans, mortgages, etc.) can show a borrower’s financial strength, so long as they’re consistently smart and responsible with how they spend, manage, and balance their money.
#2: A good rule of thumb for credit utilization is to keep balances below 30% (using less than 30% of the available credit limit). This provides insight on a client’s financial capabilities.
#3 A consistently higher utilization overall can lead to a higher debt-to-income ratio; it’s better to keep it lower on all credit cards and individual accounts to increase approval odds.
#4 If a borrower doesn’t have enough credit references to obtain the loan they wish to secure, they can start building credit from scratch by opening small lines of credit that can be paid off easily.
I hope these helps answer a few questions you may have about credit.
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