Do you make your payments on time? Since this determines approximately 35% of your score, it is certainly in your best interest to make all payments on time! Your payment history includes credit cards, car payments, mortgages, student loans and other loan types. Other public records on file, such as a bankruptcy, will be calculated in this group as well. If you have been late on payments, information such as how recently these payments were made and how much time elapsed between the due date and pay date will also factor into your score.
How much debt do you have? All outstanding balances for credit cards, car loans, mortgages, etc. will determine about 30% of your score. How many of these accounts have balances? For example, if you can possible pay down significantly or pay off credit card debt, you’ll be in much better shape during loan approval. Eliminating some avenues of credit can demonstrate your willingness and ability to responsibly pay back new loans.
How long have you been establishing your credit? Specifically, how long have your current accounts been opened and how long as it been since you used each of them? This usually determines approximately 15% of your score. If no credit history exists, you should begin by establishing credit accounts and be sure to keep them spotless. The less history that exists, the less the loan amount you’ll likely be able to obtain.
Pursuit of New Credit
Each time you apply for credit, there is an inquiry into your current credit score. If you recently applied for a VISA card, Nordstrom account and car loan, you may want to hold off applying for a home loan for a few months. Each inquiry may slightly reduce your FICO score and may portray you as someone overindulging in credit. This usually accounts for approximately 10% of your total score.
Types of Credit in Use
The number of accounts (such as ATM cards, car loans, credit cards) you have determines approximately 10% of your final score.
Once your bank is aware of your FICO score they may or may not choose to share this information with you. Assuming they do share your score with you, it is important to remember the higher the score, the more likely you are to obtain a loan. Also, a higher score directly translates to lower interest rates. Over time with home loans, lower interest rates can play a significant role in the total amount you SAVE!
Other Factors That Determine Loan Approval
Now, a great FICO score will not be the only determining factor in loan approval. Some additional factors that figure into the approval process include the following: