The mortgage industry is imploding. High risk mortgages to high risk borrowers are becoming extinct. Credit scores will be more important than ever. There are five major factors that calculate your credit score with each factor carrying a different percentage:
- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit History
- 10% New Credit
- 10% Types of credit
Notice the first 3, that’s 80%: How you pay, how much you owe, and how long you’ve been paying carries the most weight.
Having a good credit score is a commitment. The FICO score is a solid indicator of your debt/payment habit. Rarely have I seen a borrower who takes their debts seriously with poor scores. On the other hand if a borrower has poor credit, they’ve developed poor debt/payment habits. A few years ago I worked with a couple that had poor credit. They were in a bind and relied on me to help them improve their scores. It took a few months but I helped them clean up their credit with one caveat, that the next time I pulled their credit, I would hope to see their scores improve. A year later I pulled their credit, their scores never improved. They went back to their old habit of signing up for credit cards and maxing them out.
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