Home Buyer's Guide

Impact of Your Credit/ What Affects Your Rate?

Whether you were aware of it or not, you’ve been earning a score since you opened up your first line of credit. Your credit score is a reflection of your history of managing finances and a prediction of how they will be handled in the future.

This credit score is the standardized basis lenders, such as First Choice Loan Services Inc., use to assess the level of risk involved with extending a loan to you. Formerly known as the Fair Isaac Corporation Score (FICO®), this number can range up to 850 and down to 300. And, as in most games and sports, the final outcome typically is better for those with a higher score.

Better interest rates are often extended to those with a higher credit score because they represent a lower risk to the lender. It’s also possible for a lower down payment amount to be required for those with a higher credit score. The flip side is also true for those who have lower scores. Qualifying for a mortgage with a lower credit score can be more challenging, and higher down payment amounts or interest rates may be necessary.

Getting Graded:

To prevent lenders from interpreting the credit score too subjectively, a standardized grading system has been established and is used by most lenders.

Credit Score Grade:

  • 800 – 850………. A+
  • 750 – 799………. A
  • 700 – 749………. A-
  • 650 – 699………. B
  • 600 – 649………. C
  • 550 – 599………. D
  • 500 – 549………. E
  • 300 – 499………. F

It is this score that lenders use to analyze the risk of extending the loan and that greatly affects the rate and other aspects of your mortgage.

What Affects Your Rate?

Your credit score is comprised of five main categories, each contributing a different percentage of weight to the overall score. The aspects that make up each of these categories are broken down below.

Payment History (35% of score)

  • Payment details on various types of accounts
  • Public record and collection items
  • Information regarding late or missed payments, including:
    • Length of time of the delayed/missed payment
    • Amount owed
    • How long ago the late/missed payments occurred
    • Number of late/missed payments that appear

Amounts Owed (30% of score)

  • Amount owed on all accounts
  • Amount owed on various types of accounts
  • Amount being used of the total credit line
  • Amount still owed on installment loan accounts
  • Whether you are showing a balance on certain types of accounts

Length of Credit History (15% of score)

  • General length of time your credit accounts have been established
  • Length of time specific credit accounts have been established
  • Length of time since you used certain accounts

New Credit & Inquiries (10% of score)

  • Number of new accounts you have
  • Length of time since you opened a new account
  • Amount of recent requests for credit you have

Types of Credit (10% of score)

  • What kinds of credit accounts you have and how many of each
  • Total number of accounts you have

Improving Your Score

Occasionally, due to various circumstances, you may find your credit score is lower than anticipated. This low credit score could prevent you from obtaining a favorable rate on your mortgage. The good news is that there are several steps you can take towards cleaning up your credit. Speak with your financial advisor or a First Choice Loan Services Loan Originator to understand the best path to cleaning up your credit.

Acquiring Your Credit Report

You are able to acquire a complete copy of your credit report from the three leading credit reporting agencies: