Credit Score

Of all the numbers assigned to you (your age, bank balance, GPA), few can affect you as much as your credit score will. Credit scoring represents a fair, uniform method of analyzing an applicant's fiscal responsibility. Your credit score, or FICO score, determines whether you qualify for various types of loans, credit cards, insurance, and even jobs. Fair, Isaac, & Co., or FICO, began developing credit scoring in the 1950s. Since then, the model that company developed has become the generally accepted quantitative standard by which credit history is analyzed. A credit score condenses your credit history into a three-digit number, ranging from 300-850. Credit scores are calculated by evaluating different credit criteria and assigning points based on how one measures up in these categories. The categories include payment history, length of credit history, amount of available credit in use, types of credit used, and amount of new credit. The graph below shows how important each of these criteria is in determining your credit score.

The three major credit repositories are Experian, TransUnion, and Equifax; they compile data from banks, government agencies, and other creditors to generate credit reports, and they each issue scores based on the data they have. Some lenders will pull one bureau and one score when you apply for credit, but most mortgage lenders pull from all three bureaus and use the middle of the three scores.

Frequently Asked Questions:

Does my credit score affect my ability to borrow?
Yes.  A low credit score represents high risk to lenders, whereas a higher credit score represents lower risk.  Typically, the greater the risk to the creditor, the higher the interest rate for the borrower.  Having bad credit will cost you money.

Can my credit score change?
Yes, each month you credit score can change because your payment history and credit activity are reported to the bureaus monthly.  If you pay a payment late, your credit score will go down.  If you pay all your bills on time consistently and avoid carrying too much credit card debt, your score can go up.

Do the types of accounts I have open affect my credit score?
Yes.  Installment (auto loans, student loans) and mortgage debt are regarded more highly in the scoring model than revolving (credit card) debt.  Even assuming a perfect payment history, your credit score will be lower if you have ten open credit cards with balances and no other debt than if you have 1-2 open credit cards, a car note, and a mortgage.

How can I fix my bad credit?
Remember, no matter how terrible your payment history, you can overcome it with time and diligence.  Your Midwest Mortgage Capital Mortgage Consultant would be happy to work with you and/or refer you to a trusted credit repair specialist to get your credit report in order.

All sorts of derogatory items are showing up on my credit report, but those are not my accounts.  How can I get this fixed?
Pursuant to the Fair Credit Reporting Act, have the right to dispute incorrect information with the credit bureaus and/or flag your credit report for identity theft, if that is the problem.  Your Midwest Mortgage Capital Mortgage Consultant would be happy to work with you and/or refer you to a trusted credit repair specialist to cure any misinformation on your credit report.

I had great credit, but then I had a major qualifying event that caused me to miss some payments.  I’m back on track now, but my credit score has suffered.  Can I still get a loan?
Lenders look hard at your credit report and credit score to determine your creditworthiness.  However, mortgage lenders may also consider factors that might have affected your credit score which were beyond your control. For example, if you once had very high medical bills due to an accident and were unable to repay them promptly because you could not work, those circumstances would be taken into consideration

Is credit scoring fair?
Credit scoring is an objective method for determining your ability to repay your bills. It eliminates subjective factors from determining your creditworthiness.  Once again, the credit scoring model uses objective criteria which are not influenced by biased credit evaluations; that said, a good mortgage lender will review not only your credit score and credit report, but will also consider other documentation to prove your ability and willingness to pay your house payment.

To get a free consumer copy of your credit report, contact a Midwest Mortgage Capital Mortgage Consultant today!