6 factors that affect your credit score & what you should know about them | Real estate tips

Although there are many reasons to own a home such as a place to build memories with your family, no risk in rent price increase, a house is also an investment and just like any other investment chances are you will need a loan to purchase it.

Now, obtaining a loan for a mortgage will require a certain credit score. Every loan amount and its terms varies from person to person and what makes such determination are a person's credit score.

Credit scores range between 200 and 850, with scores above 620 considered desirable for obtaining a mortgage.

So, here are six factors that affect your credit score and what you need to know about them if you are thinking about purchasing a home.

6 factors that affect your credit score

• The length of your credit history

How long have you had your credit account open? The longer the better but in order to obtain a perfect score of 850 you will need to have your account open for at least 9 years.

• Your payment history

Did you pay your credit card bills on time? Bankruptcy filing, liens, and collection activity also affect your history.

• Total number of accounts

There' s a myth that the more accounts you have the less your credit score will be. That's totally untrue, especially considering that in order to have a perfect score of 850 you must have 21 or more reporting lines of credit.

The reason why the total amount of accounts you have is important is because lenders want to see that you can manage effectively all types of credit.

• Credit Utilization

How much you utilize your credit can have a huge impact on your score. In order to attain and maintain a good credit score, it is recommended that you keep your credit utilization to about 10% - 29% of your credit limit.

For example, if your credit card limit is $2,000 you will want to make sure that at least 71% of your loan is paid before the end of the month and the next statement.

For a perfect score, a utilization rate of 9% or lower is necessary. You can achieve this by spreading your credit card expenditure into different accounts and keeping the utilization rate for each one at a maximum of 29%.

• Derogatory Marks

Derogatory marks are missed payments. Each missed payment results in a derogatory mark, so before you miss a payment call the creditor and try to make an arrangement, you might be able to come to a resolution that avoids a derogatory mark on your credit history.

• ​New Inquiries

New inquiries happens when you apply for credit. There are two different types of inquiries: Soft and hard.

Soft inquiries are when credit is checked but won't be used to accumulate debt such as those for rental applications. Hard inquiries are the ones in which credit will be accumulated such as credit cards, mortgage and car loans.

The good thing about credit inquiries is that they disappear from your credit history within two years compared to everything else that remains for seven years.

Finally, keep in mind to keep track of your credit history and ensure there aren't any mistakes or any accounts that aren't yours. Companies like Credit Karma provides free credit score and other credit information at no extra cost to you!

Remember, every detail makes a difference so if you encounter any error on your credit history, be sure to contact the lender or the Consumer Financial Protection Bureau to file a complaint.

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