credit score presentation v7
TRANSCRIPT
How your credit score may impact your
mortgage application
What is your credit score?
Credit Score ✘ Credit scoring gives a quick, accurate method for assessing credit risk
✘ Based on data concerning your credit history and payment patterns ✘ Statistically based mathematic models are used to assign points to factors relevant to likelihood of repayment.
✘ This type of software modeling is employed by credit bureaus and/or lenders to determine someone’s credit worthiness
Objective versus Subjective ✘ CREDIT SCORES ARE BASED UPON DATA, NOT HUMAN JUDGEMENT and hence this is an objective risk assessment tool versus a potentially subjective, discriminatory human assessment
✘ Credit scores are considered accurate…but in some cases can be artifically skewed! ✘ Many factors are weighted and measured resulting in a score in seconds
✘ The resultant credit score is a ‘snapshot in time’ that sums up an individual’s past payment performance and current usage of credit ✘ Conveys a level of risk to a lender ✘ A credit score is a composite of all available credit information regarding the applicant so no single factor (such as a late payment or even bankruptcy) would be the cause of an unacceptable credit score
Data used in
Credit Scoring
✘ The fewer your late payments, collections, judgments and liens you have on your credit bureau the better your score will be. Zero negative entries here usually indicates LOW RISK. ✘ Recent late payments are weighted heavier than those that occurred more than 24 months ago ✘ A 30 day late payment today has greater impact on score than a bankruptcy five years ago with subsequent clean credit.
Past Payment Performance ~35% of score
✘ Lower balances on several credit cards is better than a higher balance on a few cards ✘ Balances on your cards should be kept below 75% of your available credit limit
✘ Too many credit cards with high balances can be detrimental to your score
Credit Utilization ~30% of score
✘ The longer your credit card history is in good standing the better ✘ Opening a new credit account and closing a long term account will negatively impact your credit score
Credit History ~15% of score
✘ Established credit history is relative to your past payment performance and how high or low your credit usage may be. >> Self discipline in utilizing credit indicates lower credit risk ✘ A short credit history does not automatically indicate you are a higher credit risk… >> …as long as you are not a heavy user of credit and make payments on time and keep card balances low
More on credit history - continued
✘ Finance company accounts will score lower than accounts you secure through banks or department stores >> If most of your accounts are with finance companies, it may indicate higher risk ✘ Deferred payments are generally funded by finance companies >> also an indication of higher risk
Types of credit in use ~ 10%
✘ Looking for new credit can indicate high risk if several cards are applied for in a short period, especially if existing cards are maxed out ✘ Multiple inquiries, regardless of the number, for mortgages or autos only count as ONE inquiry if within 14 day period
✘ Additional mortgage or auto inquiry made to your credit file within 30 days of current lender inquiries will not impact your credit score
✘ Only inquires authorized by you for the purposes of being granted new credit will impact your score
Inquiries on your credit~ 10%
Summary of Factors Making up your credit Score
10% - types of credit in use
35% - past payment performance
10% - Inquiries into your credit
15% - credit history
30% - credit utilization
✘ Race ✘ Gender ✘ Marital status ✘ Religion ✘ Income ✘ Nationality ✘ Neighbourhood ✘ Employment history, position or title ✘ Sexual preference ✘ Interest rate being charged on a particular card
Irrelevant to your scoring model
✘ NO MAGIC FORMULA! Credit scores automatically improve as your credit profile improves. This takes time. ✘ Ensure you have and maintain 2 trade lines at all times and that one is revolving credit i.e. credit card. ✘ Pay down all your credit card and lines of credit balances to below 50% of available limit.
Improving your Credit Profile and Score
more ways to improve your credit profile and score
✘ Don’t close any accounts without the advise of a knowledgeable broker ✘ Review your credit report for accuracy at least 90 days prior to applying for a mortgage and have any inaccuracies corrected. ✘ Paid collection items will show a zero balance but will not disappear from your credit profile for SIX YEARS after paid in full.
thanks! Any questions?
You can find me via my website: http://mortagesbelleville.com
Credits
✘ Presentation template by: SlidesCarnival
✘ Presentation material compiled by:
StoneHouseMarketing Solutions, Inc.