Know your Number: How your Credit Score Affects Real Estate Financing

Your credit score is a number that reflects your creditworthiness at any given point in time. When you apply for a loan, the creditor will run a credit report to determine the amount of risk involved in investing in you, the applicant.

Loan approval and the amount of money you are eligible to borrow are critical elements of your real estate transaction. That makes it important to understand how credit scores work.

Your credit score is calculated based on a number of different factors found on your credit report, broken down here:

  • The number of new account and credit requests you've made (10%)
  • Your credit risk (10%)
  • The length of your credit history (15%)
  • Your total indebtedness (30%)
  • Your payment history or record of paying your bills on time (35%)

The higher your score, the higher the amount you will be eligible to borrow and the lower your rate. Here are three quick tips to boost your score:

  1. Pay down any existing credit card debt to below 30 percent of the available credit limit. A large percentage of a credit score is based upon “total indebtedness” or the use of your available debt. The more you have borrowed relative to your available limit will lower your score.
  2. Set up automatic payments to ensure your bills are paid on time; paying on time is one of the most important means of improving and keeping your credit scores high.
  3. Continually monitor your credit report for accuracy. You are entitled to receive a free credit report from each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — once every 12 months. You can order all three reports at once or one at a time. Call 1-877-322-8228 or go to Regularly checking your credit report will allow you detect any errors such as incorrect balances or monthly payment requirements.

Additional information also can be obtained from the three credit reporting agencies:

TransUnion (855) 681-3196
Experian (888) 397-3742
Equifax (866) 640-2273

For additional information related to credit scoring or assistance with a mortgage loan, please don't hesitate to contact CU/America Financial Services at (630) 620-5200 or (800) 351-0449. We are here to help!