2022 Boise Idaho Real Estate Blog

Credit Scoring 101

Main Boise Home Loans

Today...a short list of answers to the most frequently asked questions about credit scores.

Even though these are hypothetical questions, they are the same or similar to many other questions I have been asked as a Mortgage Consultant over the years. I am answering these questions from the Residential Mortgage world, so a car salesman or an insurance broker or a cell phone provider might answer them differently.

What is a good credit score?

750 - 850  --  Great
720 - 749  --  Very Good
680 - 719  --  OK
580 - 679  --  Not Good
300 - 579  --  Bad

Just two years ago, someone with a credit score of 680 would have gotten the same mortgage rates as a person with a 750...times have changed.

Why do my three credit scores vary so much?

Not all creditors, collection agencies, etc. report to all three credit bureaus. And, because the three bureaus are competitors with each other, they do not share information. Each bureau can only use the information they have to generate a score for you.

I have three credit scores. Does a mortgage lender use all of them?

Yes and no. Usually, an applicant's mid-score is used to qualify for a mortgage. For example, if your three bureau scores are 780, 732, and 729, your qualifying score would be a 732. On a joint application, I use the lower of the two mid-scores from my borrowers. One thing we DO NOT do is use an average.

When do my scores change?

Your credit scores change whenever the information on your credit report changes.

I pay my bills on time and have never missed a payment. So, why is my score so low?

Ahhhh, if it were truly that simple. This is the question I get more often than any other. This is a prevalent thought among many people I work for, but it ignores the fact that roughly only 1/3 of your credit score is calculated by payment history. So, if that is the case, then where is the other 2/3 of your credit score coming from?

Your credit score is caluclated like this:

35% -- Payment History
30% -- Debt Ratio
15% -- Duration of Credit History
10% -- Mix of Credit Usage
10% -- New Credit Inquiries

There are many more than this, but a partial list of things that your credit score DOES NOT take into account are interest rates you are paying, dollar amounts you owe to creditors, your salary, and rental contracts (unless delinquent).

In my next several BLOG entries, I will break down the credit score categories I listed above.

If you are interested in talking more about this post or a specific credit scoring issue you have or know about, feel free to call us

Posted by Eric Leigh at 2/20/2009 1:03:00 PM

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