Credit scoring is a system creditors use to help determine whether to give you credit and how much to charge you for it. Information about you and your credit experiences, like your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. A credit scoring system awards points for each factor. Your credit score helps predict how creditworthy you are; meaning, how likely it is that you will repay a loan and make the payments on time. Generally, consumers who have lower credit risks have higher credit scores.

You have three FICO scores, one from each of the three credit reporting agencies: (CRA), Experian, TransUnion and Equifax. Your 3 FICO scores affect both the amount of a loan and your interest rate that lenders will ultimately offer you. A FICO score is a three-digit number ranging from 300-850 and is calculated according to credit risk factors. These factors are represented in five categories. The weight of each category is represented by percentage (and subject to change without notice).

Amounts Owed (30% of score): What is owed on all accounts, on different types of accounts, whether you show a balance on certain types, how much of the total credit line is used, and a number of installment loans that are still owed.

Your Payment History (35% of score): Payment information, public records, and collections, late or missed payment details: how late, how much owed, how recent, and how many.

Length of Credit History (15% of score): How long your credit accounts have been established, in general, and how long it has been since you used certain accounts.

New Credit & Inquiries (10% of score): Types credit accounts you have, how many of each and the total number of accounts you have.

Types of credit (10% of score): Number of new accounts you have, how long it has been since you opened a new account and the number of recent requests for credit you have made.

It's important to make sure your credit report is accurate, because it can affect the accuracy of a credit score. You can have multiple credit scores, created by different companies or lenders that use their own credit scoring system.

Gain some more knowledge here:

USA.gov Credit Reporting and Scoring

Federal Trade Commission: Credit & Consumer Rights

You’re definitely not alone when it comes to wanting to improve your credit score. According to a 2014 study by the Urban Institute, about a third of Americans have some form of credit delinquencies. However, there is a light at the end of the tunnel for many potential home buyers. We find that more often than not, the gap to qualify for home financing isn’t too far out of reach. If you start now with these very basic credit management tips, you can begin to achieve a better credit future:

On Time Payments: Make payments on all your bills on time, every time. Can only make the minimum payment? That's absolutely ok!

Check Your Credit Report: It's important to check your credit report to see if there are any errors. It’s surprising how often a corrected error can close the gap to qualifying for a home loan or increasing your odds at a more appealing interest rate.

Avoid Applying For New Credit Inquiries: Put a stop to applying for new credit cards or lines of credit. The more you send in for a credit inquiry, the lower your score will go. Inquiries stay on your report for 2 years!

Payoff High Interest Rate Credit Cards: If you can, payoff those high interest rate credit cards. Most likely your hardly chipping away at your principle balance and throwing more money toward interest. Pay those off as soon as possible and watch your credit score rise!

If you are having problems paying your bills, contact your creditors immediately. Try to work out a modified payment plan with them that reduces your payments to a more manageable level. Don’t wait until your account has been turned over to a debt collector.

If you find errors on your credit report, write a letter disputing the errors and send it (along with supporting documentation) to the following: Experian, TransUnion and Equifax

Gain some more knowledge here:

Sample Dispute Letter

Disputing Errors On Credit Reports

Federal Trade Commission: Solving Your Credit Problems

USA.gov: Credit Reports

Even with the tighter credit guidelines used in today’s mortgage financing, your mortgage experience doesn’t necessarily have to be a stressful nor overwhelming! You’re in a great position to set yourself up for success especially if you follow these tips. The sooner you learn how your credit is influences the process, the better off you’ll be for earning yourself a loan approval.

Avoid Big Purchases Using New Or Old Credit
Avoid big purchases such as furniture, appliances or cars until AFTER your loan closes. We do get notified of any credit changes, so, when you open a new account (even with “no payment due until next year”), it will lower your credit score slightly which in fact can have a negative impact on your pending home loan. Fannie Mae requires a credit report to be pulled before closing. If there are inquiries on the report, they could void your approval.

Use Your Current Credit Responsibly
It is best to show responsible use of credit during the approval process. Avoid excessive use and high balances. If your balances increase on your credit cards, the loan amount you that you had once qualified for may now become a lower loan amount leaving you with you with less to spend on a new home.

Keep Your Existing Accounts
Any activity on your credit accounts will initially cause your score to drop this includes even closing existing accounts. It is best not to change your credit picture in any way without speaking to your lender first.

Leave All The Credit Checking To Your Lender
Your credit will be pulled and checked for your initial pre-approval. Having your credit pulled again by other companies can lower your score. A letter of explanation may be required indicating that no new credit was established and the reason for the credit pull.

Receiving Gift Funds From A Friend Or Family Member?
Inform your Summit Mortgage Lender as early as possible in the process! Lenders are required to follow a specific process and set of rules when it comes to monetary gifts that are used for closing costs or down payments. We will be able to walk you through the process step by step to ensure your gift funds will have a chance to be utilized.

There you have it! Now that you are in the know, but these newly learned tips into practice and the process can be surprisingly smooth.

Don't you worry, The Fair Credit Reporting Act (FCRA) has got your back!  FCRA promotes the accuracy, fairness, and privacy of information in the files of our nation’s credit reporting companies. Amendments to the FCRA expanded consumer rights and placed additional requirements on credit reporting companies. Businesses that provide information about consumers to credit reporting companies and businesses that use credit reports also have new and strict responsibilities under the law.

Do I Have A Right To Know What’s On My Credit Report?
Absolutely. You have the right to know what’s on your report. All you have to do ask for the information! The credit reporting company must tell you everything in your report and give you a list of everyone who has requested your report within the past year or the past two years.

What Type Of Information Do Credit Reporting Companies Collect & Sell?
Identification & Employment Information:
Your name, birth date, Social Security number, employer and spouse’s name are routinely noted. The credit reporting company may provide information about your employment history, home ownership, income, and previous addresses.
Payment history:
Your accounts with different creditors are listed, showing how much credit has been extended and whether you’ve paid on time. Related events, such as the referral of an overdue account to a collection agency may also be noted.
Inquiries:
Credit reporting companies must maintain a record of all creditors who have asked for your credit history within the past year, and a record of individuals or businesses that have asked for your credit history for employment purposes for the past two years.
Public record information:
Events that are a matter of public record, such as bankruptcies, foreclosures, judgements and tax liens may appear on your report.

Is There A Charge For My Credit Report?
Under the Free File Disclosure Rule of the Fair and Accurate Credit Transactions Act (FACTA), each of the nationwide credit reporting agencies (Experian, TransUnion and Equifax) are required to provide you with a free copy of your credit report once every 12 months, as long as you ask them for one.

What Information Do I Have To Provide To Get My Free Credit Report?
You need to provide your name, address, Social Security number and date of birth. If you have moved in the last 2 years, you may have to provide your previous addresses. To maintain the security of your file, each credit reporting agency may ask you for information that only you would know.
Take note that the free annual credit report is only authorized from the three major credit reporting agencies (Experian, TransUnion and Equifax). These three agencies will never contact you via email or phone to ask you for your personal information nor ask you if you’d like a free credit report. If you by chance do receive a phone call, an email, or perhaps see a pop-up ad claiming to provide a free credit report, please proceed with extreme caution, or better yet, simply contact any of the three credit reporting agencies directly!

What Other Situations Would Allow Me To Become Eligible For A Free Credit Report?
You’re entitled to a free report if a company takes adverse action against you, such as denying your application for credit, insurance, or employment. You can ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the credit reporting company. You’re also entitled to one free report a year if you’re unemployed but plan to look for a job within 60 days. Your also eligible for a report if your report is inaccurate because of fraud or identity theft. However, you may also have the option to purchase and additional credit report from any of the three credit reporting agencies.

Now, the only question remaining, is what are you going to do with all this newly found knowledge? Make good choices out there!