Credit Scores: Based Upon What? How Does it Work?

by Guest Blogger J. Austen Smith, Mortgage Loan Specialist

Credit is one of the most important things a person can manage. It will also be one of the most confusing things as well. Hopefully the following information will be able to assist you with understanding how your credit score works and why it is important to monitor it.


Your FICO, or credit, score is part of the mortgage information that will dictate whether or not your application is approved.

Your score is based upon:

• Timely credit payments
• Amount of debt you owe
• How recently your accounts were they opened
• Number of recent inquiries on your credit report
• Different types of credit

 There there are three important milestones for your FICO Scores:

1. 640
2. 680
3. 720

During the underwrtiting process the underwriter of your loan will review the risk factors in your credit history:

• Your credit history for the past 2 to 4 years.
• How often your made your payments on time
• How often you were late on your payments
• If you ever had any accounts go into collections

Your FICO score can also affect:

• Type of mortgage program
• the down payment amount
• The amount that you are allowed to borrow
• The interest rate you are offered

You can perform your own credit check by going to www.annualcreditreport.com, you can obtain one FREE credit report each year of the three major credit reporting agencies: Equifax, Experian, and TransUnion. Your own personal inquiry will not affect your score.

Make sure to take advantage of this free offer because:

• You will know where you stand
• You will have a starting point for improving your score
• About 25% of all credit report can contain some type of mistake

Your FICO score is based one or a combination of these credit reports. If there is an error on your credit report, you need to fix it to help you get the best possible mortgage rate and program. Each credit bureau offers an automated online system for submitting your dispute.

Finally, be smart and purposeful about your credit and don't hesitate to sign-up with a reputable credit watch provider.