One of the most important factors a lender will consider when reviewing your application for a Kansas City home loan is your FICO ,or credit, score. The two largest influences on your credit score are how you pay your debts and how much debt you owe.

How Are FICO Scores Broken Down?

Each credit bureau has its own standards and guidelines for calculating your FICO score, so it will vary depending on the agency. Lenders will take the middle score from your credit report when considering your loan application.

Your FICO score is broken down into 5 different sections:

  • Payment history (35%)
  • Amounts owed (30%)
  • New credit (10%)
  • Length of credit history (15%)
  • Types of credit in use (10%)

Keep in mind that each of these factors is weighed depending on your unique situation. For example, payment history for an individual who has been using their credit for a long time will be viewed differently than someone who has just started using their credit.

Payment History

Your payment history carries the most weight when calculating your FICO score. Negative items typically stay on a credit report for seven years, but bankruptcies can remain for up to 10 years. Your payment history can include of the following factors:

  • Account payment information
  • Bankruptcies, judgments, suits and liens
  • How long overdue any delinquent payments have become

Amounts Owed

If you are trying to improve your FICO score, you need to make sure to watch how much debt you obtain and carry. Your score will include any of these items that apply to you:

  • Amount of debt still owed to lenders
  • Number of accounts with outstanding debt
  • Percentage of credit lines in use on revolving accounts such as credit cards
  • Percentage of debt still owed on installment loans such as mortgages

New Credit

Taking on new credit too quickly can negatively affect your FICO score. The following items are considered in your FICO score as new credit components:

  • How many accounts have been opened in the past 6 to 12 months
  • How many credit inquiries have recently been made
  • How long it’s been since the opening of any new accounts

Length of Credit History

The length of your credit history is a very important part of your FICO score. If you do not have a long history of credit, it can be difficult to be approved for a Kansas City home loan. Credit history will look at:

  • How long accounts have been open
  • How long specific account types have been open
  • How long it’s been since those accounts were used

Types of Credit in Use

The types of credit in use are also known as the “credit mix.” Don’t open accounts you don’t intend to use as it can negatively impact your score. The types of credit in use can include:

  • Installment loans such as auto loans
  • Mortgage loans
  • Retail credit cards
  • Unpaid loans taken on by collection agencies or debt buyers

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The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.