Finance | A. Margulis

By: A Margulis  09-12-2011

The exact methodology of a credit score cannot legally be released to the public, but credit reporting bureaus do allow an approximate breakdown:

Payment history – 35%
This element of the credit score is given the most weight, since your payment history expresses how responsible you have been about paying bills on time. Late payments or, in worst cases, notices of collection and bankruptcy, will all lower your score. Payment history also reviews how recently certain behaviors have occurred—late bill payments will be considered more negatively when they happen more recently.

Outstanding debt – 30%
The greater your current debt—including credit cards at their limits or other monthly bills for large items—the lower your credit score will be. Having significant debt will make lenders wary of adding more.

Established credit history – 15%
Your credit score improves the longer you have had established credit. A longer history is more useful for credit reporting, since there is a larger volume of past data to use for predicting future behavior.

New credit – 10%
Receiving new credit, such as a loan or new credit card, will temporarily lower your credit score. This element of the score is also a record of inquiries into your credit rating—mortgage lenders constitute a so-called “hard inquiry” that will lower your score (as opposed to personal inquiries, which have no effect). The score does count multiple hard inquiries that occur within a brief period of time as a single inquiry, so as not to penalize loan shopping.

Types of current credit – 10%
Showing a familiarity with several different types of credit is a positive on your credit score.

Knowing this breakdown can help you strategize the best ways of keeping your score in good standing—for example, paying your bills on time and maintaining a lower total debt balance are clearly the most effective ways to improve your credit rating.

Other products and services from A Margulis


Refinance | A. Margulis

The current “refi boom” is indicative of the uncertain status of the United States right now—the last time lenders saw this many people seeking to refinance was in the middle of 2003, when unemployment was high, the country was embroiled in two wars, and a couple of high-profile corporations, such as Enron, were ruined by their own malfeasance.


Home Purchase | A. Margulis

Community pride – Neighborhoods that have withstood hard economic times and which display the residents’ pride in being there are not only more pleasant places to live, but also have more value than neighborhoods where upkeep is not a priority to the homeowners.


Loan Process | A. Margulis

Underwriters will render one of four decisions, based on the borrower’s request, history, and purported value of the home: they will either approve the loan, approve the loan with conditions, suspend judgment, or deny the loan. They will look at both the total amount owed and the current monthly payments being made.- Monthly income, including all regular salaries, commissions, and self-employment income.


Home Owner Tips | A. Margulis

One of the most important pieces of mortgage paperwork you signed at the outset of your loan was the “deed of trust,” which certified that you had a mortgage on your particular property and were paying it off to your lender. Other lenders, however, will simply return the promissory note you signed, indicating that the note has been paid and canceled, and it will then be your responsibility to secure the deed of trust release.