As powerful as the Internet is, don’t let your own online research stop you from moving forward with a real estate purchase. 

Only a mortgage broker, bank, or private lender can determine your individual credit worthiness. 

Don’t assume that a low credit score will preclude you from securing a quality mortgage product. Most lenders will look at your overall financial situation when reviewing your file. Life changing events such as a divorce can wreck havoc on your credit; lenders understand this, and adjust their decision making process accordingly. 

A credit score, commonly known in the lending business as a risk score, helps the credit grantor analyze your creditworthiness and make an objective decision regarding your ability, likelihood and timeliness that you will repay your debt. 

How your credit score is calculated?

Your payment history accounts for 35% of your score.

Paying your bills on time is the single most important way to obtain a high credit score. Generally, late payments will remain on your credit report for seven years. 

How much you owe accounts for 30% of your score

This part of your credit score looks at the amounts owed on various accounts compared to the available credit limits. Lenders look at this information to determine if you are, or will probably become financially overextended. 

Our advice: keep your balances low and your accounts current on your unsecured debts. 

Your credit life accounts for 15% of your score

This part of your credit score looks at the longevity of your credit accounts. Naturally, the longer you’ve had credit, the higher your score will be for this section. Lenders want to see that you’ve had credit, use your credit wisely, and repay your debts in a timely fashion. 

Credit applications account for 10% of your score

If you open several credit accounts within a short period of time, you will be seen as a greater risk of becoming overextended. Credit inquiries age off of your report at six months. Multiple credit inquires from lenders will also lower your score. 

Your credit types account for 10% of your score

This is pretty straight forward. Lenders look at your credit blend, they look at the types of credit you have and where you stand on each account. Types of accounts include credit cards, retail accounts, installment loans, and mortgage loans. 

How is your credit score used?

When you submit an application for credit, the lender will request your credit scores, which are calculated using information from your credit reports. Credit grantors such as banks, credit card issuers, mortgage lenders and finance companies use your credit score to approve or reject your application.

Credit scores are calculated using information from millions of consumers with the help of computer programs known at scoring models. These programs track consumers’ past credit files over a period of several years to develop a credit profile for a large base of credit grantees. To calculate your score, your individual credit profile is compared to the base information. 

Your credit score indicates your projected ability to repay the credit extended to you. 

NOTE: Credit scores are a snapshot in time. As information is added or deleted from your report, the score will change.

Would you like to see your credit report?

Personal credit reports may be obtained from the following companies: 

Equifax: 800-865-1111

Experian: 888-397-3745

Trans Union: 800-888-4213

Quick tip: Credit reports do not automatically include your credit score. To see what lenders see, including your score, check out MyFICO.com. Each report is $15.95.

Last updated on January 24, 2012 by Blake Roberts