Financial Facts: What makes up your credit score? |

Financial Facts: What makes up your credit score?

Bob Kieber
Special to the Daily

As everyone knows who has seen lightning and heard thunder in the past year or so knows the mortgage marketplace has been in turmoil. The subprime mortgage fiasco has left the mortgage marketplace for the majority of borrowers in a mess. Times have changed to where a borrower now has to have cash in the bank, income that can be documented and a credit score higher than their IQ.

We all know how to document our money in the bank and we should all know how to document our income. But do we all know and basically understand how we end up with our credit scores?

Credit scores can range from 450 to 850, the higher the score the better. There are three major credit reporting companies that most mortgage lenders rely on for the borrowers’ credit history, those being TransUnion, Equifax and Experian. And each of these credit reporting companies derive the scoring a bit different, so keep that in mind as you read on.

First the credit reporting companies look at the credit that has been established by the consumer. If the consumer has let’s say ten open charge accounts the automated system determines if the bills have been paid on time. If all the accounts are free from late payments your credit score goes up over time.

If you have made a late payment but within 30 days of the due date you score will drop a bit. If you have a 60-day late payment your score will drop even more and if you have a 90-days late payment your score will drop dramatically. And your payment history is the biggest part of your credit score you need to be sure to make your payments on time.

The next category they computerized program looks at is the amount you owe on each credit card. If your balance is $9,500 on a credit limit of $10,000 your score will drop. The lower percentage to the credit limits the better. In fact if your history with the credit card company is clean I suggest you contact them and ask for a higher limit. This does not mean that you should use it; it just makes your percentages look better to the computer.

The next major item looked at to determine your scores is the length of time you have had that account open. The longer the period you have that Discover Card, Master Card, etc the better. And please do not go out and try to open a charge account at every retailer. Having some credit availability is good but too much can be bad, so apply for credit in stages and with moderation.

And the last big factor in determining your credit scores is the type of credit you have available. Having a mortgage and paying it on time is good, having 17 different charge cards is bad.

So now you know the basics to having good credit. The rules are simple and easy to follow so go forth and good credit to all.

For answers to your mortgage related questions call Bob Kieber at (970) 262-1199 or email him at Bob is a local mortgage lender and principal of Resort Lending. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country.

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