What’s in a Number?
How Important are your Credit Scores?By Teri West, Licensed Mortgage Originator
WHEN YOU APPLY FOR CREDIT—whether for a car loan, a credit card or a mortgage—a lender wants to know what risk the company would assume by loaning money to you. The lender will gather this information from three credit bureaus:
- Equifax, which gives a BEACON® Score,
- TransUnion, which gives an EMPIRICA® Score, and
- Experian, which gives a Fair Isaac Risk Model Score.
These agencies receive your payment history from account holders of your mortgage, auto loan, credit cards, store loans and others. The information your account holders report to these three bureaus is what appears on your credit report. The credit bureaus each produce a score, known as a FICO® score, and the lender uses the middle of these three scores to evaluate or qualify your loan.
By understanding the factors that affect your credit score, and taking action to improve those factors, you can influence your credit score.
Consider your answers to the questions below and compare them to the ideal:
How many accounts do you hold?
The ideal is four accounts. One account should be open for at least six months and reported in the last six months.
What is your credit limit versus your balance?
The ideal balance is 30% of your high credit limit.
Do you have any mortgage loans?
If you have a mortgage, this will give the most value to your score. Be on time always, if not, this will pull your score down dramatically.
How many retail store credit cards do you hold?
Ideally have at least 2 open accounts and try to use them periodically.
What auto loans do you have?
Auto loans show a pattern of longevity and can help your scores.
Do you have closed credit card accounts?
Closed accounts can hurt your credit score, even if you paid on time. Be careful not to close all your accounts!