Home Buying News
5.17.11 – How Your Credit Score is Calculated
5.19.11 – HomePath Mortgages
5.17.11 How Your Credit Score is Calculated
Understanding your FICO score and how it affects home buying
Home buyers who are seeking a mortgage find out early-on that their credit score plays an important part in the home buying process and in determining the interest rate that lenders offer.
What is a credit score?
A credit score is a number that lenders use to determine risk. Experience has shown them that borrowers with higher credit scores are less likely to default on a loan.
How are credit scores calculated
Credit scores are generated by plugging the data from your credit report into software that analyzes it and cranks out a number. The three major credit reporting agencies don’t necessarily use the same software, so don’t be surprised if you discover that the credit score they generate for you are different
Why are credit scores sometimes called FICO scores?
The software used to calculate a great number of credit scores was created by Fair Isaac Corporation – FICO.
Which parts of a credit history are most important?
The pie chart above shows a breakdown on the approximate value that each aspect of your credit report adds to a credit score calculation. Use these percentages as a guide:
35% – Your payment history
30% – Amounts you owe
15% – Length of your credit history
10% – Types of Credit used
10% – New credit
Your payment history includes:
– Number of accounts paid as agreed
– Negative public records or collections
– Delinquent accounts:
1. total number of past due items
2. how long you’ve been past due
3. how long it’s been since you had a past due payment
What you owe:
– How much you owe on accounts and the types of accounts with balances
– how much of your revolving credit lines you’ve used – looking for indications you are over-extended
– amounts you owe on installment loan amounts vs. their original balances – to make sure you are paying them down consistently
– number of zero balance accounts
Length of credit history:
– total length of time tracked by your credit report
– Length of time since accounts were opened
– time that’s passed since the last activity
– the longer your (good) history, the better your scores
Types of credit:
– total number of accounts and types of accounts (installment, revolving, mortgage, etc.)
– a mixture of accounts types usually generates better scores than reports with only numerous revolving accounts (credit cards)
Your new credit:
– number of accounts you’ve recently opened and the proportion of new accounts to total accounts
– number of recent credit inquiries
– the time that’s passed since recent inquires or newly opened accounts
– if you’ve re-established a positive credit history after encountering payment problems
– in general, checking to make sure you aren’t attempting to open numerous new accounts
Credit scoring software only considers items on your credit report. Lenders typically look at other factors that aren’t included in the report, such as income, employment history and the type of credit you are seeking.
National Credit Scores
% of Population Credit Score
2% 300 – 499
5% 500 – 549
8% 550 – 599
12% 600 – 649
15% 650 – 699
18% 700 – 749
27% 750 – 799
13% 800 – 850
Columbia Mortgage will take the time to listen to your financial needs and use our vast knowledge in the mortgage industry to find the right program for your specific needs. www.cmortgage.net / 503-906-8990. NMLS-85335
5.19.11 HomePath Mortgages
Great opportunity for buyers who are purchasing a Fannie Mae-owned property. HomePath allows a borrower to purchase a Fannie Mae-owned property with a low downpayment, flexible mortgage terms, no lender requested appraisal and no mortgage insurance. Expanded seller contributions to closing costs are allowed.
Benefits to You, the Borrower
- Low down payment & Flexible mortgage terms (fixed-rate, adjustable-rate, or interest-only)
- Down payment (at least 3%) can be funded by the borrower’s own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer.
- No lender-requested appraisal
- No mortgage insurance
- Seller can contribute up to 6% towards settlement costs
- Available for primary residence, second homes and investment properties
- Many condo project requirements are waived
Property and additional information can be found at 
