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Credit Score Basics

Your credit score is a number that lenders use to estimate risk. Borrowers with higher credit scores are less likely to default on a loan and can usually get larger loans and lower interest rates. Regardless of the type of loan you are applying for your credit score directly affects how much your loan will cost. Credit scores usually range from 340 to 850, and borrowers with scores above 700 will usually have more, and better, options.

The scores are sometimes called FICO scores after the name of the company who created the software used to calculate credit scores, the Fair Isaac Corporation. A lender usually gets your scores from the three major credit reporting agencies, Transunion, Equifax and Experian, and uses the middle score. The data these companies use comes from your creditors, the court system and other public records, and debt collection agencies.

These are approximate percentages for the relative importance of the various parts of your credit history:

• 35% - Payment history, including the number of accounts paid as agreed, negative public records or collections, including delinquent accounts (total number of past due items, how long you've been past due, and how long it's been since you had a past due payment).
• 30% - Amount Owed, including how much you owe on accounts and the types of accounts with balances, how much of your revolving credit lines you've used, amounts you owe on installment loan accounts vs. their original balances, and number of zero balance accounts.
• 15% - Length of Credit History, including length of time tracked by your credit report, length of time since accounts were opened, time that's passed since the last activity.
• 10% - Types of Credit, including number and types of accounts (installment, revolving, mortgage, etc.) A mixture of account types usually generates better scores than reports with only numerous revolving accounts (credit cards.)
• 10% - New Credit number of accounts you've recently opened and the proportion of new accounts to total accounts, and the number of recent credit inquiries.

The higher your score, the less risk a lender believes you will be. As your score climbs, the interest rate you are offered, whether it’s for a stated income loan or a super jumbo loan, will probably decline.

My Mortgage Banker is a nationwide lender offering green commercial loans and green building loans up to $8,000,000 primarily through the recently enhanced SBA 504 program.

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