5 Factors That Decide Your
Credit scores range between 200 and 800,
with scores above 620 considered desirable
for obtaining a mortgage. The following
factors affect your score:
1. Your payment history. Did
you pay your credit card obligations on
time? If they were late, then how late?
Bankruptcy filing, liens, and collection
activity also impact your history.
2. How much you owe. If
youowe a great deal of money on numerous
accounts, it can indicate that you are
overextended. However, it’s a good thing if
you have a good proportion of balances to
total credit limits.
3. The length of your credit history.
In general, the longer you have had accounts
opened, the better. The average consumer's
oldest obligation is 14 years old,
indicating that he or she has been managing
credit for some time, according to Fair
Isaac Corp., and only one in 20 consumers
have credit histories shorter than 2 years.
4. How much new credit you have.
New credit, either installment payments or
new credit cards, are considered more risky,
even if you pay them promptly.
5. The types of credit you use.
Generally, it’s desirable to have more than
one type of credit — installment loans,
credit cards, and a mortgage, for example.
Are your finances in
1. Develop a household budget.
Instead of creating a budget of what you’d
like to spend, use receipts to create a
budget that reflects your actual spending
habits over the last several months. This
approach will factor in unexpected expenses,
such as car repairs, as well as predictable
costs such as rent, utility bills, and
2. Reduce your debt.
Lenders generally look for a total debt load
of no more than 36 percent of income. This
figure includes your mortgage, which
typically ranges between 25 and 28 percent
of your net household income. So you need to
get monthly payments on the rest of your
installment debt — car loans, student loans,
and revolving balances on credit cards —
down to between 8 and 10 percent of your net
3. Look for ways
to save. You probably know how much you
spend on rent and utilities, but little
expenses add up, too. Try writing down
everything you spend for one month.
You’ll probably spot some great ways to
save, whether it’s cutting out that morning
trip to Starbucks or eating dinner at home
4. Increase your
income. Now’s the time to ask for a
raise! If that’s not an option, you may want
to consider taking on a second job to get
your income at a level high enough to
qualify for the home you want.
Save for a down payment. Designate a
certain amount of money each month to put
away in your savings account. Although it’s
possible to get a mortgage with only 5
percent down, or even less, you can usually
get a better rate if you put down a larger
percentage of the total purchase. Aim for a
20 percent down payment.
your job. While you don’t need to be in
the same job forever to qualify for a home
loan, having a job for less than two years
may mean you have to pay a higher interest
7. Establish a good credit
history. Get a credit card and make
payments by the due date. Do the same for
all your other bills, too. Pay off the
entire balance promptly.
How Much Can You
Use the mortgage loan calculator to find
out an estimated payment.
What You Can Do to
Improve Your Credit Score
Credit scores, along with your overall
income and debt, are big factors in
determining whether you’ll qualify for a
loan and what your loan terms will be. So,
keep your credit score high by doing the
1. Check for and correct any
errors in your credit report. Mistakes
happen, and you could be paying for someone
else’s poor financial management.
2. Pay down credit card
bills. If possible, pay off the entire
balance every month. Transferring credit
card debt from one card to another could
lower your score.
3. Don’t charge your credit
cards to the maximum limit.
4. Wait 12 months after
credit difficulties to apply for a mortgage.
You’re penalized less for problems after a
5. Don’t order items for
your new home on credit — such as appliances
and furniture — until after the loan is
approved. The amounts will add to your debt.
6. Don’t open new credit
card accounts before applying for a
mortgage. Too much available credit can
lower your score.
7. Shop for mortgage rates
all at once. Too many credit applications
can lower your score, but multiple inquiries
from the same type of lender are counted as
one inquiry if submitted over a short period
8. Avoid finance companies.
Even if you pay the loan on time, the
interest is high and it will probably be
considered a sign of poor credit management.
Types of Loans to
Brush up on these mortgage basics to help
you determine the loan that will best suit
Mortgages are generally available at 15-,
20-, or 30-year terms. In general, the
longer the term, the lower the monthly
payment. However, you pay more interest
overall if you borrow for a longer term.
Fixed or adjustable interest rates.
A fixed rate allows you to lock in a low
rate as long as you hold the mortgage and,
in general, is usually a good choice if
interest rates are low. An adjustable-rate
mortgage is designed so that your loan’s
interest rate will rise as market interest
These mortgages offer very low interest
rates for a short period of time — often
three to seven years. Payments usually cover
only the interest so the principal owed is
These loans are sponsored by agencies such
Federal Housing Administration
Department of Veterans Affairs
and offer special terms, including lower
down payments or reduced interest rates to