As you know, one’s credit scores and history play a huge role in the Arizona mortgage loan approval process so it’s important that you understand credit in general and what you can do today that will put you in a better position to purchase a home tomorrow!

Lenders will look at your open accounts, payment history, types of credit and other factors when considering what a borrower’s risk level will be.  Even a slight increase or decrease in a credit score can affect the required down payment, the loan programs that a borrower can qualify for as well as the interest rate on the loan.

A person’s credit score, or “FICO” score (which stand for the Fair Isaac Corporation) has been the standard score that the three main credit reporting agencies (Equifax, Experian and TransUnion) use to sell to lenders.

FREE CREDIT REPORT: Consumers are allowed by law to receive a copy of their credit report file from each of the bureaus. You can access your free annual credit report here www.AnnualCreditReport.com

Key components of this score are compiled from:

  • 35% – Payment Histories:  If you’re 30 days late, have collections or judgments or have had a bankruptcy can all have a negative impact.
  • 30% – Amount you owe compared to your available balance:  Keep your balances less than 40% of your available credit limit. Credit scores are punished when it looks like you are tapped out of credit.
  • 15% – Length of Credit History:  The longer your accounts are open, the better it is!  Even if you have a 10 year old credit card that you rarely use, it would probably be a bad idea to close it
  • 10% – Mix of Credit:  A good mix of credit cards, fixed loans (such as an auto loan) and other debt helps to improve your score.
  • 10% – New Credit Applications: Always try to avoid having multiple credit reports pulled in a short period of time as this negatively affects your scores

Credit Score FactorsThese Factors Do Not Impact Credit:

  • Your Age
  • Your Race
  • Your Sex
  • Your Employment History
  • Your Income – it is a myth that credit bureaus know your income
  • Your Marital Status
  • How long you have been at your current
  • Occupancy status

Establishing your credit history initially can include the proper use of bank accounts, your employment history and your residence history as well as on-time payments of utility bills.  Although these aren’t reported directly to the credit bureaus, mortgage lenders may view these factors in their decision making process.