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2016-05-13 09:52:25
Factors Affecting Credit Scores

Mike Meena

From Mike Meena, President, Augusta Financial

I get credit questions from clients all of the time and after being in the mortgage industry for 25 years the one thing I can't tell anyone definitively is how they come up with credit scores. What I can tell you are all of the factors that go into scoring a credit report. Below are a few things that you may or may not know when it comes to credit scores:

  • You can get a credit report from a Mortgage Company, a car dealership, a credit card company and even get one online and your credit score will vary! That is because there are different versions of every credit model.
  • There are 3 different credit reporting agencies - Trans Union, Equifax, and Experian.
  • Income has NOTHING to do with your credit score!
  • Having low balances or no balances on your credit scores is better for your credit scores than having high balances. This is very important on revolving credit!
  • Having fewer revolving accounts with limited available credit is better for your credit scores than someone with a lot of available credit and low balances.
  • Payment History is the most important factor in your credit score. Recent late payments, collections, judgments will hurt your score more than old derogatory items.
  • Inquiries do not affect your credit scores and if they do it will affect your credit scores slightly in extreme cases with lots of inquiries.
  • Credit scores do not generally decrease when you apply for new credit. They could increase if you apply for a lot of new credit.
  • Closing an account with delinquencies will not help your credit.
  • Bankruptcies, Foreclosures, Lawsuits, Wage Attachments, Liens, and Judgments are considered serious delinquencies. These will stay on the credit report for 7-10 years, and the first hit will be bad and your scores will improve over time.
  • I have seen collections scores by over 100 points and when the collection was removed the scores go right back up.
  • If you have perfect credit and you miss two payments you could see your credit score drop 50-100 points or more. This is perceived as you are going down for the count!

Credit is a funny game and although I don't consider myself an expert, we have helped many people improve their credit scores before they close escrow. This allows them to get a better interest rate for as long as they have the loan.

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