Construction Loans CA

• Home
• Contact
• About US
• FAQ
• Free Quote

Loan Types

Useful Info

 

Why Credit Scores are Important

Credit scores are used by lenders to evaluate your credit worthiness.  The scores are derived from credit information that your creditors report to the three national credit bureaus.  The reported information typically includes your credit limit, balance and repayment history.  When you apply for a loan, you authorize the lender to access your credit information, also known as a credit history.  Upon receipt of an authorized request, the bureaus provide your credit history to the lender in a uniform format known as a credit report.  

The bureaus charge a fee for providing your credit report to the lender and they also charge a fee for scoring your information.  Scoring is done by a computer program that awards points for certain information in a report.  Each bureau has its own scoring program and as a result, your credit score differs between the bureaus.  Credit scores are useful to lenders because they provide an objective method of comparing your information to the information of other consumers.  The higher your credit score, the better the loan programs and interest rates that are available to you.

What Your Score Means

Credit scores range from 300 to 850.  Perfect credit is generally considered to be 780 and above.  Excellent credit is 720 and above and good credit is 680 and above.  Fair credit is considered to be in the range of 620 to  680.  For lower credit scores, loan qualification will depend upon a strong showing of qualifying income, assets or a larger down-payment.      

How Credit Scores are Calculated

While the exact calculation is not disclosed by the credit bureaus, scoring is generally determined as follows:

• 35% Payment History - Your payment history has the single greatest effect on your credit score.  Late payments lower your score while timely payments raise it.  Your recent credit history carries more weight than your past history.  Paying your bills on-time is one of the most important things that you can do to raise your credit score.

• 30% Outstanding Debt - Your credit score is affected by the amount of your outstanding debt.  If your outstanding debt is 50% or more of your available credit, then your score will be lowered.  You can improve your score by reducing your debt to less than 50% of the available credit.

• 15%  Length of Credit History - Scoring is affected by the length of your credit history.  A 20-year credit history will carry more weight than a 2-year history. 

• 10% Inquires - Credit inquiries appear on your credit report when you apply for credit.  If there are a lot of inquiries, then your score will be negatively impacted.  Like your payment history, the more recent the inquiries, the greater the effect that it will have on your credit. 

• 10% Type of Credit - The mix of credit that you currently have will affect your score.  If you have different types of loans and credit cards, then your score will be higher than if they are all of the same type of credit.  This factor plays a greater role in your score when there is not much information in your credit report.