Under the Hood of the Credit Score Bureaus

These days, with more conservative mortgage-lending guidelines in place, it’s important to have a good credit score. People with the best scores qualify for the best rates and, in turn, they have the lowest payments. Following is some information on how credit works with respect to obtaining home financing:

The three credit bureaus – TransUnion, Equifax and Experian – use scoring models to rank you from a credit perspective.  They pull information from places such as credit card companies and car loan companies to determine how much debt you have and how well you’re able to manage that debt.

Two of the biggest factors in determining credit scores are recent payment history and the ratios of your credit card balances to your credit line.

Your recent payment history includes not only the immediate past but also several years back, and it has a significant impact on your credit score.

If you can prove that you are able to make all of your payments on time, as in less than 30 days after the due date, lenders are more likely to offer you a mortgage – and one at a competitive rate – than someone who is unable to make smaller payments.

Ideally, you want to keep low balances on your credit cards. The credit bureaus also look at tradelines, as they are called, that have balances close to, or over, the limit. Too many lines like this may give a lender the impression that you are overextended.