1) Payment History: This is the most important part of your credit score. 12 months without a 30 day late is optimal to get a good interest rate home loan. Occasionally exceptions are made prior, but we would need some positive factors which will be addressed below.
2) Amounts Owed: If you have credit cards, you want to keep the amount charged to less than 33% of the maximum limit. Example: $1000 credit card, you do not want to charge more than $300. If you charge $990, this account is “maxed” out and it is a danger signal to the credit reporting agencies.
3) Length of Credit History: Credit history is by definition a history of your credit, the longer this history, the more they have to grade you on.
4) New Credit: Opening up a lot of new accounts is a danger signal, especially credit card accounts. So try to keep these to a minimum unless you need these to build a credit profile. If this is the case, you then have enough time for these accounts to not be new when you are ready to apply for a home loan.
5) Types of Credit: Mortgage loans, Auto Loans and a few installment loans are expected of most people. When there are an abundance of revolving credit cards, then a danger signal is triggered in your credit score.
All that being said your credit score is a very complex thing. It is a combination of all five items above.
I highly recommend you call your mortgage professional if you are thinking of doing any of the following:
1. Opening a new account
2. Paying off a collection (some really old collections are better off as they are, an unpaid 5 year old collection is better for your scores than a 1 day old PAID collection in most cases)
3. Closing an account (it is rarely good for your scores to close an account)
4. Getting a new job
This way they can give you the best advice to make sure you qualify for your home loan.
You can always call us at 866.295.9339 and speak with a mortgage banker that can go your credit with you.