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All About Credit Reports: Know Where You Stand

Knowing all about credit reports is a way to put yourself in a position to get the mortgage and home you desire. Credit reports reveal detailed information about how you spend your money and the current and past debt obligations you have created. You should definitely know where you stand before you apply for a loan.

A credit report will show both the good and the bad, like missed or delayed payments. Additionally, lenders use your credit report to determine how much money they can loan you and at what interest rate they would charge you should they approve your application for a loan. The hard fact is: Lenders use your credit score and credit habits as the basis for approving your application for a loan or mortgage. While it is not impossible to overcome a poor credit score in today’s tougher lending market, you should do everything in your power to improve your credit score before you apply for a loan.

Viewing a credit report may not be enjoyable for many, but you should realize that it does not just bear a number (that may be good or bad for you); it also shows you where you can do improvements to raise your score. Raising your credit score and improving your report to reflect more responsible credit habits can be as easy as allowing other to help you.

Here are the five factors that determine your FICO score and let you know where you stand in your credit profile, according to Wells Fargo. This truly encompasses all about credit scores that you should know. The levels of importance shown here are for the general population, and will be different for each individual:

  1. Your payment history is approximately 35% of your score:
    The most significant impact on your score is whether you have paid past accounts on or before the date the payment was due. However, an overall good credit profile can outweigh a few late payments, and late payments have less impact over time.
  2. Amounts that you owe is 30% of your score:
    Part of the science of credit scoring is determining how much debt is too much:

    • In some cases, having a very small balance without missing payments shows you’ve managed credit responsibly, and may be slightly better than having no balance at all.
    • While you don’t want to have too many accounts open, it’s good to have more than one, so that you’re not using too much of one account’s available credit limit.
    • Owing a lot of money on numerous accounts suggests to lenders that you may be overextended and more likely to make late payments — or make no payments at all.
  3. Length of your credit history is 15% of your score:
    In general, a more seasoned credit history will increase your FICO score. Lenders want to see that you can responsibly manage your credit accounts over time. However, even those people who have not used credit for an extended period of time may get high scores, depending on how the other information in their credit report appears.
  4. New credit and taking on more debt is 10% of your score:
    Opening several credit accounts in a short period of time can represent a greater risk, especially for those with newer credit histories. According to Fair Isaac Corporation, FICO scores try to distinguish between an attempt to obtain many new credit accounts and an attempt to obtain the best interest rate. FICO scores generally do not associate higher risk with shopping for the best interest rate.
  5. Types of credit in use is10% of your score:
    Your FICO score will reflect your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans, etc. While a healthy mix will improve your score, it’s not necessary to have one of each, and it’s not a good idea to open accounts you don’t intend to use.

Additionally, FICO scores also ignore self-inquiries, so checking your own credit report will not lower your credit score. Everyone is entitled to one FREE credit report per year (every 12 months) at Start here to learn where your current credit score stands. Also, the Federal Trade Commission offers some great information on your access to credit reports.

To learn all about credit reports and more, contact Chicago Mortgage Spot today. Chicago Mortgage Spot was created to help people find the information they need to get a home mortgage loan and to help you know where you stand in the process of buying a home. Our goal is to make things easier on you by providing up to date information on all the latest mortgage related news and also a way to find a lender that fits your needs.