A Behind The Scenes Look At Credit Scores

Your credit ranking can have the single most significant impact on your ability to buy a home for sale in Northern Virginia and on your ultimate monthly payment. A slight increase in the interest rate that you pay could add tens of thousands of dollars to your payments over the life of a loan. If you are confused as to what factors contribute to your credit ranking, you have plenty of company. Consumers have only had open access to their credit ratings for a little while, so people are just starting to learn how those scores are calculated.

The 3 national credit-ranking companies each use their own proprietary scoring models. Let's examine the most widely used one from Fair, Isaac Company (FICO), which was also the first continued model used in the industry by TRW, now know as Experian, a leading credit reporting agency. The FICO model gives weights approximate to the following categories in your credit records and has the greatest impact on your ability to buy a home for sale in Northern Virginia:

History of Payment (35%) Most consumers believe that if they've paid their bills on time, they have little to worry about. But don't bank on it. This portion of the score carries the highest weighting, but it's unfortunately the one that contains the most problems, including posting errors by the credit reporting companies. Errors on your credit report that haven't been brought to light can cost you precious score points without your knowledge. For this reason, you should check your credit files with all three national credit agencies annually.

Amount Owed (30%) This rates the types and number of accounts, total open accounts and distribution of debts among accounts. The rating here is based not only on the amount of credit limit available to you on open lines, but also on how much of that credit you've currently used. A majority of accounts with significant balances may hurt you. Any creditor looking at this information would also want to compare your income to the amount of debt you carry. The higher the ratio of these two, the potentially higher financial risk you may pose to a lender.

Length of Credit History (15%) The more time the positive credit history on an account, the higher the score. That's why if you decide to close out credit accounts, it may be wise to close the newer accounts and keep the older ones with a longer positive track record.

Newer Credit (10%) Applying for several accounts over a short time frame likely will reduce your score. It's a potential red flag to creditors to see many accounts, especially credit cards, opened within a short period of time. It could signal that you anticipate an income shortage and are preparing by obtaining credit to live on. A score can even be affected if the borrower transfers a balance to a new lower-interest-rate credit card.

Credit Mix (10%) Your mix of credit cards, retail accounts, finance company accounts, installment loans and mortgage loans. A good mix of types of accounts is good here, whereas too many of one type could shave points off the credit score.

Understanding your credit score is just on part of Buying a Home in Northern Virginia We hope that this information has shed some light on how credit bureaus calculate your score. There are numerous Northern Virginia Home Buying Guides available for you. Select the one that is right for you.