Credit Floors and Different Programs
Every Loan Program has their own specific guidelines for credit requirements. Conventional financing is the most popular choice for qualifying borrowers for a multitude of reasons. FHA financing has a lower credit floor than conventional financing, allowing more buyers to obtain a mortgage than those qualify for conventional financing. VA loans are reserved for veterans while USDA loans are for those who obtain properties in rural areas of the country. For more information on the different type of loan programs, go to the loan program page.
Minimum Score by Program
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What Makes Up Your Credit Score?
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Your Credit Score is made up of 5 different categories that all have varying impact on your overall score. While some categories make up more of your credit score than others, it is important to make sure you are keeping all 5 in mind to make sure your score is the highest that it can be.
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Payment History
This is your bill paying track record that also carries the most weight when determining your credit score. Having a single account that shows a late payment may not have much of a negative impact on your score. However, making multiple late payments or letting an account go to collections can have a large negative impact on your credit score. Credit Utilization Your Credit Utilization is a measure of your balance-to-limit ratio. In other words, how high is the balance on your credit accounts? Keeping a low balance on your credit cards has been shown to improve your score over time while individuals who consistently keep high balances and max out their credit utilization see their scores improve at a slower rate. |
Length of Credit History
While FICO does not consider your age while calculating your credit score, the age of your credit accounts is absolutely used for the score calculation. Typically, the longer the account has been open, the more it positively impacts your credit score. New Credit How many new accounts have you opened recently? Opening multiple credit accounts in a short time can have a negative impact on your score. Credit inquiries (any time your credit is pulled it is marked as an inquiry, even if you don't obtain any new debt) can also have a negative impact on your score if you have too many in a short period. Credit Mix Do you have different types of credit accounts? Having a variety of credit accounts (credit cards, car payment, installment loans) can have a positive impact, although that impact is usually small. |
Types of Liabilities
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Credit Type #1 - Installment
An installment credit is when you borrow a specific amount of money from a lender and you agree to make regular payments on a fixed amount over a specified amount of time. Mortgages, car payments, and student loans are all examples of installment credit. You make the same payment every month until the balance of the loan is paid off completely. |
Credit Type #2 - Revolving
Revolving credit refers to credit accounts that do not have a specified ending date, like your credit cards. A lender has given you credit up to a specified amount, that you are free to use repeatedly as long as the account remains open and payments are regularly made. Other revolving credit accounts are department store cards, gas cards, and home equity lines of credit. |
Credit Type #3 - Open
Open credit accounts usually have an amount due that is different or fluctuates every billing cycle. These accounts will typically be paid in full each billing cycle. Utilities are a great example of an open credit account. Each month your bill will vary based on how much of the utility you use and you will be obligated to pay the full amount of the bill each billing cycle. |
When analyzing your credit report, your mortgage professional will take all of these credit types into consideration to determine your credit worthiness. However, your credit score is only impacted by Installment and Revolving credit accounts. Utility accounts, cell phone bills, and streaming service charges are not included in your credit report. While these open credit accounts do not impact your credit score, it is important to keep them in mind when you are budgeting each month.
How Can You Improve Your Credit?
There is no magic wand that you can wave to make your credit score improve overnight. If that were to exist, no one would have bad credit and unfortunately that is not the case. That does not mean you can't take steps to increase your credit overtime. Buyers with good credit scores have access to lower rates and better loan programs that ultimately make their monthly payments lower than those who have sub-par credit. Want to increase your credit score? Check out these useful tips below:
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1. Make On-Time Payments
The number one way to increase your credit score is to make sure that all of your accounts are currently paid as agreed. Each month you should: make all required payments on your installment loans and pay down all of your revolving credit debt so that you have a low balance. The credit score impact may not be immediate but over time this will greatly improve your score. 2. Check Credit Report For Errors Removing potentially harmful credit lines from your credit report is a great way to improve your credit, especially if the negative impact is coming from an error. According to a report, around 25% of Americans have an error on their credit report. Some common errors include fraudulent accounts, duplicated accounts, and misreported payments. It is always important to check your credit report once a year to see if everything is reported properly. |
3. Increase Your Credit Limit
There are two ways to increase your credit limit: Ask for an increase on your current credit card or open a new card. The higher your credit limit, the lower your credit utilization can be. If you have a $1,000 credit limit and pay $500 in credit card bills every month, you are at 50% credit utilization. If you increase that limit to $2,000, your utilization becomes 25%. The lower credit utilization can help increase your score over time. 4. Remove Negative Accounts That Are Paid Off Everyone makes mistakes and it's possible that you have a credit account that either has late payments or has gone to collections. If you haven't paid off collection accounts, make it a priority. Once they are paid off, ask the credit company to not only mark that the account has been paid in full, but ask that they remove the account from your report altogether. Removing the accounts entirely can have a large positive impact on your credit score. |