Home Loan Workbook

Payment History (35% of overall score) Your payment history gives prospective lenders an indication of how responsible you are when paying down debts. Keep in mind that your payment history is one of the most influential factors determining your credit score. Late payments on items that are more recent or for larger amounts will weigh more heavily on your score. Tip to improve: Make payments on time, all the time - even items in dispute. Pay the bill and worry about the refunds later. Amounts Owed (30% of overall score) This is the total value of your debts across all accounts. It’s not necessarily bad to have credit accounts with balances, as long as you are paying on the accounts consistently. “Maxing out” your available credit is much more concerning to a potential lender. Tip to improve: Don’t close out “old” credit cards, and don’t lower your available credit limits. Having access to credit is good. Length of Credit History (15% of overall score) Typically, a longer, more established credit history will earn you a higher score. Tip to improve: Don’t close cards with “history”. You need them to show you’re experienced with credit. New Credit Inquiries (10% of overall score) Opening multiple new credit accounts in a short period of time makes a borrower look like a higher risk, especially if the borrower has a relatively short credit history. Tip to improve: When you shop for a mortgage, multiple credit checks can count as a single credit inquiry, protecting your credit score. Type of Credit Used (10% of overall score) The FICO model looks at your overall credit picture and how your debt is spread out over dierent types of accounts.

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FICO SCORE BREAKDOWN

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30%

Payment History Amounts Owed Length of Credit History New Credit Inquiries Type of Credit Used

Tip to improve: Don’t carry an abundance of store charge cards. Interest rates are high and FICO model looks unfavorably upon them.

Please note that: • A FICO score takes into consideration all these categories of information, not just one or two. No one piece of information or factor alone will determine your score. • The importance of any factor depends on the overall information in your credit report. For some people, a given factor may be more important than someone else with a dierent credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO score. Thus, it’s impossible to say exactly how important any single factor is in determining your score What’s important is the mix of information, which varies from person to person, and for anyone person over time. • Your FICO score only looks at information in your credit report. However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.

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