Factors that Impact your Credit Score

So what exactly is a credit score and how is it calculated? A persons credit score is a number between 200 to 800. Where 200 is a very bad credit risk and 800 is a very very good credit risk. These numbers are used by lenders to determine how much of a risk you are, whether they are prepared to lend you money and at what interest rate they will lend you money. The lender is generally looking for a score above 620, anything below that and it is seriously impacting your change of obtaining a mortgage loan at a reasonable rate. There are several factors that impact / go into determining your score, some of which are:

• Loan Payment History If you have credit cards or loans did you pay them on time. Every late payment may have a bad impact on your score.

• How much you owe If you have a large dept to income ratio then the lender may consider you over-extended. For example, if you earn $20,000 a year and have a dept of $10,000 then this is bad. But if you earn $100,000 and have a dept of $10,000 then this maybe OK (you should be able to afford / manage the dept).

• Length of Credit History The longer the credit history the better. It can be as bad to have no credit history than having bad credit history. There are people who pay cash for everything and do not take loans out. When they apply for a mortgage loan the lender can see no history so they don't know if they are a good payer or a bad risk.

• New Credit. Loans and credit cards which have just been obtained are deemed to be a higher risk by the lender.

• Type of Credit. The more different types of loan you have had over time the better. For example, if you have only had a credit card, then the lender does not know how good you will be at paying a mortgage / fixed payment loan, so they may see you as being more of a risk.

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