What Impacts Your Credit Report?

Credit ReportA lot of factors can affect your credit score, and there are some new, surprising changes that will benefit lots of individuals. The three major credit reporting companies — Equifax, Experian, and TransUnion — are making significant adjustments to the way they report medical debt. This marks a notable change and could maybe even signal other updates in the future. In today’s blog, Family Home Loan Texas discusses these changes to medical reporting in addition to other factors that impact your credit score.

Changes To Medical Debt Reporting

There are three notable changes to the way that the three major credit reporting companies report medical collections. First, beginning on July 1, 2022, medical collection debt that has been paid will no longer be included on credit reports. Also effective on July 1, you will have more time before unpaid medical debt will appear on your credit report. It is currently 6 months, but this will increase to a year in just a couple of months. With this additional time, you will have more time to work with your insurance company or healthcare providers to address this collection debt before it shows up on your report. Finally, starting in early 2023, medical debt amounts under $500 will no longer appear on credit reports. This is especially advantageous for those who face unexpected, yet not exorbitant bills. Overall, these adjustments to how medical debt is reported will benefit many Americans who have been hindered by unavoidable medical debt.

Payment History Is The Biggest Factor

The different factors that affect credit scores are all weighted differently. The largest, payment history, makes up about 35% of your report. This represents if you have paid your bills on time and if you haven’t, how late were they. Being late hinders your score, and the later you are, the worse it is. Moreover, this also encompasses any times that your accounts have been sent to collections. This can turn off lenders, as they might think you won’t pay them back. Similarly, any wage garnishments, liens, or bankruptcies can also make a mark on your report. It is important to keep in mind how recent these types of events have occurred. If you missed a credit card payment a decade ago, this will have a significantly lower impact than if you missed one in the past twelve months.

How Much Do You Owe?

The next largest component of your credit report is your credit utilization ratio, which makes up about 30% of it. This measures how much debt you have compared to your available credit limit. Even if you have a credit limit of $12,000 and have used $10,000 of it, this is seen as a red flag. You ideally want to have a low utilization rate without it totally hitting zero. This is because owing a little bit shows that you are responsible with your credit and are stable enough to pay it back.

How Long Is Your Credit History?

Credit reports also value how long you have been using credit. This accounts for about 15% of your report, and it benefits those who are older. Reporting companies like to see that you have had credit for a long time and that you have consistently been able to pay it back. A short history won’t harm you — as long as you make your payments in time and don’t have too much outstanding debt — but a longer history will benefit you. With this in mind, you should have credit accounts open, even if you don’t use them; this will add to the overall length of your history and will help your score in the long run.

New Credit Affects Your Report

New lines of credit make up roughly 10% of your report. This examines how many new accounts you have applied for recently and how long ago you opened your last account. Whenever you apply for a new account, a lender will do what is known as a hard pull. These can cause a small dip in your score because credit reporting companies assume that you will be using more credit, which can lead to a higher credit utilization ratio. Additionally, they also assume that you are having cash flow problems or are going to take on new debt. Yes, this is a cynical perspective for them to hold, but this is a reality. It should be noted that soft pulls — the ones you do when checking your credit score — have no bearing on your report.

Types Of Credit

Finally, the last element that affects your report is the different types of credit you have. This can include credit cards, store accounts, installment loans, mortgages, and more. This only makes up 10% and is harder to control based on your needs and situation, so do not sweat this one too much. Ideally, you would have a mix of credit types, but you shouldn’t start opening new accounts just to diversify your credit. 

Credit Scores Affect Mortgages

There are lots of reasons to strive for a higher credit score, and one of the most important ones is for receiving a mortgage. When you have a higher score, you will be more likely to secure a mortgage that has favorable terms. This means you will be able to put less money down for your down payment and can likely receive a better interest rate. Overall, a better-looking report will require fewer hurdles for you to jump over to secure a home loan.

Call Today For A No-Cost Preapproval That Includes An Evaluation Of Your Credit Report

If you have any questions about credit reports or the ways they can affect buying a home, we are here to help! Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about your home loan needs, including refinancing and reverse mortgage loans.