The Life Altering Three Digit Score

When a mortgage company pulls your credit report, they also pull your credit scores from the three credit repositories. Namely they are Experian (formerly TRW), Trans Union and Equifax. The range of your credit score will be between 300 and 850. These scores are important, because they will essentially determine the rules for your mortgage. The scores will indicate what class of loan you qualify for, the maximum amount you can borrow against a given property and of course your interest rate. Simply put, the higher your score the better your loan terms.

In the world of mortgages, you want a score of 720 or better because a score this high will give you carte blanche as far as the programs and rates available to you. However, the most competitive mortgage programs available can still be had with a score as low as 620. While there are many programs available for scores lower than 620, the terms you will receive on these types of loans, will be inferior to loans available for people with scores higher than 620. However, loans of this nature (sub-prime), can still make a tremendous amount of financial sense and must be evaluated on their individual merits.

Credit Scores are often referred to as FICO scores. That is because the company that invented the computer-scoring model is Fair Isaac and Company. The three credit repositories mentioned earlier subscribe to Fair Isaac’s scoring model. Experian refers to their score as Experian/Fair Isaac Risk Model, Equifax refers to their score as a Beacon Score and Trans Union uses the terminology Emperica Score. A lender will use the middle of the three scores to determine your loan credit grade. If only two scores are pulled or are available, the lower of the two scores are used to determine your credit/loan grade. There are minor instances where a lender will use the preferred repository score for your geographical area. In Connecticut, the preferred repository is Trans Union.

What Makes Up Your Credit Score

Credit scores are calculated based on the massive amount of data available in your credit report. Your credit report data is divided into five distinct areas. All five areas carry different weighting in determining your score. The five categories are listed below with the typical percentage weighting for each.

Payment History - 35% of your score

Payment histories of the various types of debt that is carried. For example, mortgages, installment loans, credit cards, retail accounts finance company accounts etc.

  • Adverse Public Records (bankruptcy, liens, judgements, collections etc.)
  • Severity of Delinquency or how long past due.
  • The recency of the late payments or delinquency.
  • The dollar amount of delinquent accounts or collections
  • Number of Past Due accounts
  • Number of accounts “Paid as Agreed”


Amounts Owed - 30% of your score

  • Number of accounts with balances
  • Proportion of credit use to credit available
  • Proportion of balance to the original loan amount on certain installment loans

Length of Credit History - 15% of your score

  • How long since accounts are open
  • How long since each specific type of account is opened
  • Time since account activity

New Credit - 10% of your score

  • Number of recently opened accounts and usually by type and proportion thereof
  • Number of Credit Report Inquiries
  • By type of account, time since they are open
  • Aging of Credit Report Inquiries


Types of Credit Used - 10% of your credit score

  • Basically, how you use the various types of accounts
  • Your score takes into consideration all of the data available in all of the categories. It’s not an arbitrary pick and choose. No one single credit item can determine your credit score. The category weighting can be slightly changed depending on all of the data in your credit report. It’s important to note that credit scores only assess your credit report and credit worthiness in that narrow scope. It doesn’t look at other factors that lenders do in determining your credit worthiness such as income, length of employment assets and collateral to touch upon a few.

Your Credit Score Does Not Reflect

  • Your race, color, national origin, sex, marital status or religion
  • Age
  • Your Salary, occupation, employer or employment history
  • The current interest rates that you pay
  • Your ability to collect alimony, child support or other sources of income
  • Essentially, any information that is not found in your credit report

How to Improve Your Credit Score

First and foremost, THERE ARE NO QUICK FIXES. The key is to manage your credit responsibly over time. The following tips will get you well on your way to a better credit score.

While there are times when it is easier said than done, Pay Your Bills On Time. If you fall behind, get caught up and stay caught up as quickly as possible. {bold}Be careful about paying off collections and liens. Doing so could actually hurt your score over the short term. In fact, we often advise our clients to work closely with us in the timing of such matters.

If you are beginning to get into trouble financially, it is important to act sooner than later. Personally, as a mortgage professional, I cannot tell you how many times I have said, “I wish you came to me earlier”. Keeping your head in the sand will only speed you along to a complete burial financially speaking.

It’s important to keep your credit card balances low. Try not to exceed using more than 50% of the revolving (credit card) debt available to you. The closer you become to “jamming” your balances, the lower your credit score. It’s better to payoff debt than to move it among card to card. Be careful closing your accounts as well. Closing older accounts in favor of newer ones will shorten your length of credit history and that can negatively impact your score. This is another area that we advise clients to consult with us before making any moves.

People with newer credit histories should be careful about opening too many accounts too soon. This can have the appearance of desperation and it can be very risky to the inexperienced credit user. The scoring model “understands” this and reflects it in your score.

Be careful how you shop for credit. Please see our mortgage shopping tips{link to shopping page}. Try to do all of your shopping in a contained (one to two week) period of time. Don’t allow anyone and everyone to pull your credit. In fact if you don’t want a prospective lender to pull your credit, it is wise to make that clear under no uncertain terms.

Excessive credit pulls will lower your score. Let me repeat that, too many credit pulls will lower your credit score. That is why it is best to pull your own credit directly from the repositories even if it cost money to do so. When you pull directly from the bureau, it does not impact your score. It also allows you to tell prospective lenders what your three scores are so they can accurately quote you rates and terms. They can do so without them having to pull a report. Ultimately, the lender you decide upon will need to pull your credit. Your lender of broker cannot submit a loan file for closing and resale without a credit report ordered by them and in their name. Be careful of internet mortgage sites that shop your loan for you. You can be inviting a half dozen credit pulls without ever knowing who pulled your credit and lowered your credit score.

See our links section for more credit score and credit report resources.