We are happy to share that Michelle Black of the HOPE Program has a featured article in At Home Magazine this month! You can pick up a copy of At Home Magazine at your local Harris Teeter, BP gas station, or Lowes Food Store. For your convenience, see below for a copy of the article as well:
Where Do Credit Scores Come From?
By Michelle Black, Co-Owner, HOPE (Home Ownership Program for Everyone)
It is true that credit scores affect our lives in many important ways. First, anytime you apply for a mortgage, car loan, credit card, or financing of any kind your credit score will be looked at by an underwriter. The underwriter then decides whether you are approved or denied. If you are approved, your credit scores are looked at again to determine what kind of interest rate you will receive. As you can see, credit scores are the #1 factor considered when you apply for a loan.
Since credit scores are the first key to loan approval, let’s talk a little about where these credit scores come from and how they are calculated. There are 3 major credit bureaus in the US: Equifax, Trans Union, and Experian. Each credit bureau gives us a different score. The following chart shows the basic makeup of a credit score with any of the 3 major credit bureaus:
Payment History, an individual’s history of paying bills on time, accounts for 35% of our credit score. If a person has a high percentage of late payments on bills then his/her credit score will be lower. It may sound crazy, but late payments can lower a person’s credit scores more than any other factor including bankruptcy, foreclosure, or repossession. One late payment can actually drop someone’s credit score 30-100 points (especially if it is the first time a late payment is appearing on the credit report in a while).
Amounts Owed account for 30% of our credit score. This factor can be somewhat confusing. The credit bureaus will look at the amount of debt being carried by a person and compare it to that person’s available credit limit. For example, if you have a credit card with a $500 limit and you owe $490 on the card then your credit score will be lowered. However, keep that same credit card paid off your credit score will be higher. High credit card balances can significantly lower your credit score, even if you pay your monthly bill on time!
Length of Credit History makes up 15% of our credit score. The credit bureaus look at the age of a person’s open credit lines to determine how many points will be awarded or taken away from the credit score for this category. The older the accounts appearing on your credit report, the better. Opening a new account can potentially lower your credit score even if you have never missed a payment on the account.
New Credit makes up 10% of our credit score. This refers to how often a person applies for new accounts. Every time your credit report is pulled to apply for a loan your score is lowered 1-3 points and you do not regain those lost points for about 90 days. However, a “soft pull” of your credit report (that is an individual requesting a copy of his/her own personal credit report to review the file) does not hurt your credit score at all. If you have not reviewed your credit report in a while, you are entitled to a free copy every year from www.annualcreditreport.com.
Types of Credit Used account for the final 10% of our credit score. It is important to have the right balance of accounts on your credit report. Too many accounts can hurt your credit scores, but so can too few accounts. Also, loans with consumer finance companies (i.e. paycheck advance loans) will hurt your credit scores just by opening the account.
Credit reports and scores can be quite tricky to navigate alone. If you are facing credit problems or even if you simply want to improve your already “good” credit into “great” credit it is best to seek the guidance of a reputable credit expert. We would love to invite you to contact our credit experts at HOPE (Home Ownership Program for Everyone) to see how you can improve your credit score quickly and effectively. In the last 9 weeks alone HOPE has had 49 graduates to complete our program with credit scores high enough to qualify for a home loan! All 49 graduates had been turned down for a home loan prior to joining HOPE. We would love to help you achieve your personal success story too! Please visit us online at www.hope4usa.com or call 704-499-9696 today for more information. We can’t wait to hear from you!
We’d like to share a letter received this week from a HOPE client:
Here’s a recent note we received from a special client:
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