Understand Credit Score

Understand Your Credit Image

Does your credit score make the grade?

Your FICO® credit score can be your single most important asset—or opposing barrier —when securing a loan or other form of credit. The higher your score, the easier it is for a lender to approve your credit and offer you their lowest rate. The lower your score, the more difficult it is to obtain credit and competitive terms.

Here are the five primary factors that make up the ever-changing game of credit.

Payment history – 35% of your score

This is the history of your payments weighted to the most recent activity. You lose more points for recent negative payment history than for older negative history. Over time, older late payments have less of an impact as creditors pay more attention to what's happening with your more recent payment history.

To maximize your credit score, pay each bill within 30 days of the due date.

Utilization rate – 30% of your score

This is the percentage of available credit that you use based on your credit limit. You may earn points when you use less than 30% of your credit limit on revolving accounts, and you may lose points when you exceed 30% of your limit.

To maximize your credit score, know your credit balances and avoid exceeding 30% of your limit. If you consistently exceed 30%, call the card issuer and ask them to raise your limit. This will reduce your utilization rate.

Length of history – 15% of your score

This is the length of time your accounts are open. The overall age for your accounts goes up and down over time. Any time you open a new account, it reduces the overall age (and your score) until you build a history of making payments on the new debt. Closing an older account often negatively impacts your credit for the same reason. New accounts tend to subtract points for the first 12 months, are neutral for the next 12 months and add points after 24 months of on-time payments.

To maximize your credit score, don't close that old credit card account—even if you've achieved a zero balance—unless you're being charged an annual fee. Your oldest accounts make the biggest impact on your credit score, so closing them could bring your score down. You'll need to use the card at least every six months to keep it active and to ensure it's adding valuable points to your credit score. Just don't rack up any debt you can't pay off the following month.

Type of credit – 10% of your score

There are varying types of credit, including installment loans and revolving credit. It's important to have both to achieve a high credit score. Too few accounts, or none that are currently active, will negatively affect your credit score. A good mix of credit types shows that you have the ability and willingness to manage your borrowing. Keep in mind that ATM and debit cards don't really impact your credit score.

To maximize your credit score, have at least one major installment loan (mortgage), one additional installment loan (auto), and three revolving accounts (credit cards). If you've paid off your mortgage, open a home equity line of credit (HELOC) and use it for occasional expenses that you'll pay off the following month.

Inquiries – 10% of your score

These are generally shown in two categories: soft and hard. A soft inquiry is when you pull your own credit report or an employer pulls your report with your permission. This has no direct impact on your credit score.

A hard inquiry is when a lender pulls your credit. This can have varying degrees of impact on your credit score. For example, if multiple lenders pull your credit report for a single new account (e.g., a mortgage), all of these inquiries are counted as one hard inquiry on your credit report. But if multiple lenders pull your credit report for multiple accounts (e.g., a Sears® card and an American Express® card), each instance counts as a hard inquiry, which can negatively impact your credit score.

To maximize your credit score, make sure you share your personal information only when necessary and/or you anticipate a borrowing transaction. Inquiries stay on your report for two years, and they only reduce your score for the first 12 months.

About

LoanStar Home Lending is a mortgage lender focused on providing government, conventional, jumbo and alternative qualification home loans to customers in the states we are licensed. The LoanStar Home Lending mission is to deliver expertise and efficient access to home loans with passion, pride and integrity. We continually seek to improve our service commitment to our customers and the communities where we live and work to accomplish our vision is to be the most dynamic and trusted lender. ...

 

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LoanStar Home Lending - NMLS: 1094582
9020 SW Washington Square Rd., STE 350
Portland, Oregon 97223
Phone: (855) 347-7691
Email: contact@goloanstar.com

 

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This communication is for informational purposes only, is not an offer, solicitation, recommendation or commitment for any transaction or as a confirmation of any transaction (unless expressly stated otherwise). LoanStar Home Loans, LLC, dba LoanStar Home Lending, 9020 SW Washington Square Road, Suites 250 and 350, Portland, OR 97223; NMLS 1094582. LoanStar Home Lending only conducts business in states in which it is licensed.
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