Why You Should Obtain Your Credit Score from a Reliable Source
Nowadays, many websites and mobile apps can display your credit score at your fingertips. While checking in on your credit history is always a good thing, it’s important to avoid placing too much weight on the number staring back at you. There are several sources from which credit scores are derived, and usually, the ones on third-party sites and apps are not the same as the credit score your financial institution can pull to check your score for obtaining a mortgage.
What Makes Up My Credit Score?
In general, five main factors influence your score, as follows:
- Payment History – This makes up 35% of your score and shows how well you make on-time payments. This is by far the most significant factor affecting your credit score, and showing that you make payments on time allows lenders and financial institutions to feel comfortable lending you money, providing a credit card, and more.
- Amount Owed – This makes up 30% of your score and is a very close second to your payment history. It’s always beneficial to keep your credit utilization low. Even if you have a $10,000 credit limit, it’s not wise to use all $10,000 of that credit line. Financial institutions will also look to see how your credit usage breaks down across various types, including credit cards, student loans, mortgages, etc.
- Length of History – Generally, the longer your credit history, the better – this makes up 15% of your score. Having no credit history can be just as challenging as a high credit card utilization. The earlier you obtain a line of credit, the better your odds for a higher score by the time you’re ready to make a large purchase, such as buying a home.
- New Credit – This makes up 10% of your credit score and is impacted by opening new lines of credit. Any time you obtain a loan or line of credit, the financial institution pulls a hard inquiry, which is reflected on your credit history for 12-24 months. A soft inquiry, on the other hand, doesn’t impact your actual credit score and typically happens when you check your credit.
- A mix of Credit – Your credit mix makes up 10% of your score, and a bigger variety tends to be beneficial to you. For example, rather than having only 5 credit cards and no other credit, it can be helpful to have a few credit cards, a car payment, etc.
All of these factors combined demonstrate how credit-worthy you are in the eyes of a financial institution. Mortgage lenders use these factors when deciding if you qualify for a mortgage. The higher your overall score, the better your odds of obtaining a loan.
Should I Trust a Third-Party Credit Reporting Site?
Several free or low-cost credit reporting sites are available, but it’s important to understand the pros and cons of using them. Monitoring your credit is always a great idea, but many of these sites that offer free access to your score aren’t giving you the full picture and they’re also utilizing your personal information to make your credit info available for ‘free.’ When you sign up for these free services, in exchange for offering it at no cost to you, they are obtaining your personal information, location, and more and using it to target you for offers, sales, and other deals.
The credit score that most of these companies provide is not the same one used when you’re applying for a line of credit, so you may be surprised when a lender says your score is lower than you expected. While the credit bureaus (Equifax, Experian and TransUnion) all use a similar scoring model, they can vary slightly and are based on a specific snapshot in time. Since a mortgage is a significant investment with more risk when it comes to delinquency, C&F Mortgage will pull all three bureau credit scores on the borrower and use the middle of the 3 scores if all 3 repositories have a report, and the lower if only 2 have a report.
Where Can I Find the Most Reliable Credit Score?
Everyone can view their credit score from the three main bureaus once a year via annualcreditreport.com entirely free, so this is a better option if you’re hoping to keep tabs on your credit history. If you are considering taking out a line of credit for a mortgage, car, or other large purchase, consider discussing your options with a lender and have them conduct a credit inquiry to obtain a pre-qualification and get a better idea of where you stand!
No matter where you are in your financial journey, C&F Mortgage will meet you along the way. Get in touch with our expert mortgage loan officers today to learn more about your options and get the pre-qualification you need to move forward with purchasing or refinancing a home!