Your credit rating can have the single most important impact on your ability to purchase a condo in Northern Virginia and on your ultimate monthly payment. A slight increase in the interest rate that you pay could add tens of thousands of dollars to your payments over the life of a loan. If you are confused as to what factors contribute to your credit rating, you are not alone. Consumers have only had access to their credit ratings for a little while, so people are just beginning to learn how those scores are established.

The 3 national credit-rating companies each use their own proprietary scoring models. Let’s examine the most widely used one from Fair, Isaac Company also known as FICO, which was the first industry model used in the industry by TRW, now know as Experian, a leading credit reporting agency. The FICO model gives approximate weights to the following categories in your credit files and has the greatest impact on your ability to purchase a condo in Northern Virginia:

Payment History (35%) Most consumers believe that if they’ve paid everything when it is due, they have little to be concerned with. But don’t count on it. This portion of the score carries the most significant weighting, but it’s unfortunately the one that contains the most errors, including posting errors by the credit reporting companies. Errors on your credit report that haven’t been brought to light can cost you precious score points without your knowing it. For this reason, you should check your credit rankings with all three national credit agencies every single year.

Amount Owed (30%) This rates the number and types of accounts, total open accounts and distribution of debts among accounts. The rating here is based not only on the amount of credit available to you on open lines, but also on how much of that credit you’ve already used. A majority of accounts with high balances may hamper you. Any creditor looking at this information would also want to compare your income to the amount of debt you carry. The higher the ratio of these two, the potentially higher financial risk you may pose to a lender.

Length of Credit History (15%) The more time the positive credit history on an account, the higher the score. That’s why if you decide to close out credit accounts, it may be wise to close the newer accounts and keep the older ones with a longer positive track record.

Newer Credit (10%) Applying for several accounts over a short time frame likely will drop your score. It’s a potential red flag to creditors to see many accounts, especially credit cards, opened within a short period of time. It could signal that you anticipate an income shortage and are preparing by obtaining credit to live on. A score can even be affected if the borrower transfers a balance to a new lower-interest-rate credit card.

Credit Mix (10%) Your combination of credit cards, retail accounts, finance company accounts, installment loans and mortgage loans. A good mix of types of accounts is good here, whereas too many of one type could shave points off the credit score.

Understanding your credit score is just on part of the Northern Virginia Home Buying Process We hope that this information has shed some light on how credit bureaus calculate your score. There are numerous Northern Virginia Home Buying Guides available for you. Select the one that is right for you.

The Earl of Real Estate – Robert Earl is a licensed real estate professional & Real Estate Coach based in the Northern Virginia Real Estate Marketplace. Robert has compiled a list of The 77 Most Affordable Northern Virginia Townhomes with Garages for Sale as a free service to Northern Virginia Real Estate Buyers & Seller.

- The Earl of Real Estate – Robert Earl