The following is a very basic overview of the five most important factors in determining your credit or loan score (aka FICO score). It is worth noting that the three major credit bureau all calculate their scoring models slightly differently, so what I have presented is a slightly blended overview, but it will give you the most important factors and an a rough relative weight in the credit scoring process.

HOW PAYMENT HISTORY AFFECTS YOUR CREDIT SCORE – 35%

Payment history accounts for about 35 percent of your credit score (this will vary depending on the scoring agency). It makes sense that this would be a top factor, since someone with a long history is of never missing a payment is likely to continue to be a safe person to lend money to.

If you do have negative marks on your credit score, three factors will determine the size of the deduction to your credit score:

• Time Since The Event – how long ago did you miss a payment? If it was a long time ago, and you have a good payment history since that time, it will not affect your score very much. Whereas a recent missed payment will cost more against your credit scoring.

• Number of Missed Payments – obviously matters. One missed payment in ten years of good history won’t matter very much, but the more missed payments in your history, the more risky you are seen to be and this will be reflected in a lower debt score.

• How Bad Was The Blunder? – being late or missing one credit card payment is a small deduction. All the way up to having a bill go to a collection agency to the biggest black mark of all: bankruptcy.

HOW MUCH YOU CURRENTLY OWE – 30%

If you think of your credit score as a kind of “worry index” for lenders, you’ll understand why how much of your possible credit you are using would be a concern for lenders.

Think of this aspect of credit score as a percentage. The amount you owe on all possible credit sources (credit cards, auto loans, home loans, your current mortgage and so on) divided by the total of all credit available to you.

To put it into perspective, statistically most Americans use less than 30% of their available credit and only about 12% use more than 80%.

How much you currently owe compared to your total available credit accounts for about 30% of your loan score. Knowing this straightforward measurement, to improve your score, simply pay down any loans and avoid the temptation to get cute and improve your ratio by getting a larger amount of “available credit”. As we’ll see in the next sections, this can actually hurt your credit score more than improve it.

In general people who have a debt scenario near to or at the limit of their credit are much more likely to default and therefore are given a lower credit score. If you are in this situation credit counseling, to develop a debt management plan, may be something worth considering to reverse the trend and lower your debt ratio.

HOW LONG YOU HAVE HAD CREDIT – 15%

This metric accounts for about 15% of your credit score, with favorable weight going to those who have had credit for the longest time. The reasoning behind using time as a credit score factor is because in time it is easier to establish patterns of behavior.

Even if someone has never had a credit incident (a late payment for example) but they have only had a credit card or loan for a short period of time, they may not have encountered any of the critical life events that can cause major stress.

Credit statistics show that people with the highest ratings for example, have not missed a payment even when they have lost their job or been ill for extended periods.

YOUR LAST APPLICATION FOR CREDIT – 10%

The typical American consumer last applied for some sort of new credit 20 months ago. Recent credit applications can indicate a “need” for money and needing money is a negative factor on your credit score.

Your last credit application date accounts for about 10% of your total score. In fact, even having many lenders check your credit score can have a negative impact on your credit score, so make sure you don’t authorize lenders or banks to “pull” your credit score unless you are in fact, seriously shopping for a loan or other credit instrument.

Ordering your own credit score report from one of three bureaus should not count as a negative on your actual credit score.

THE TYPES OF CREDIT YOU ARE USING – 10%

In short there are two major types of credit: revolving and installment.

Installment loans are items like car loans and mortgages. Revolving are credit cards and the like where even if you pay them in full, you still retain the credit to use it again. Generally credit cards are seen as higher quality revolving credit, than department store cards. And mortgages are seen has higher quality than revolving credit, simply because they are more difficult to obtain ( the recent sub-prime loans excluded ).

The type of credit you are using represents about 10% of your score, and a higher score is give to people with a blend of credit from various sources. This is seen as a reflection of trust, due to each credit card or loan being seen as an endorsement from a different company.

CREDIT SCORE CONCLUSIONS

It is clear when you read through the 5 credit score factors that they are derived from a statistical analysis of many years of loans versus default rate data. This is both good and bad. For the lenders it can be a fairly accurate predictor of the “typical” borrower’s behavior and for the consumer it does provide a clear roadmap for improving their credit score.

The downside to this statistical analysis is, of course, that it doesn’t account for the human factor or treat people as individuals. In the old days, before FICO Scores, the bank manager or loan officer knew their clients and included the client’s “character” as a major factor in making a decision whether to lend or not. Now that the decision is largely automated, it is possible to be unfairly represented, and be forced to pay higher lender fees, by a credit scoring models based on other people’s behaviors.

Getting approved for a mortgage, finding the right agent, searching for the perfect home and staying within a budget are some of the challenges buyers must face before they become homeowners.

Here are ten common mistakes first-time homebuyers should avoid.

1. There’s more to it than mortgage payments

Many first-time homebuyers decide to buy when they feel ready for a mortgage. But just because they can afford the mortgage payments doesn’t mean they can afford to own a home, says New York attorney Rafael Castellanos, a managing director at Expert Title Insurance.

“They have an idea of what their mortgage payment is going to be, but they don’t realize there’s much more to it,” he says.

Property insurance, taxes, homeowners association dues, maintenance, and higher electric and water bills are some of the costs first-time homebuyers tend to overlook when shopping for a place.

“Keep in mind property taxes and insurance have a tendency of going up every year,” Castellanos says. “Even if you can afford it now, ask yourself if you’ll be able to afford the increased costs later.”

Even though it’s your first home, you must think of it as a long-term commitment, says Ed Conarchy, a mortgage planner and investment adviser at Cherry Creek Mortgage in Gurnee, Ill.

“If you have to switch jobs in a year or two and may have to move for the job, you should think twice,” says Conarchy. “Ideally, you should picture yourself living in that house for five to seven years.“

2.  They don’t ask enough questions of their lender and end up missing out on the best deal.

3.  They don’t act quickly enough to make a decision and someone else buys the house.

4.  Looking for a home first and a loan later

Homebuying doesn’t begin with home searching. It begins with a mortgage prequalification — unless you’re lucky to have enough money to pay cash for your first house.

Often, first homebuyers “are afraid to get prequalified,” says Steve Anderson, a broker and owner at Re/Max Benchmark Realty in Las Vegas. They fear the lender may tell them they don’t qualify for a mortgage or they qualify for a loan smaller than expected. “So they pick a price range out of sky and say, ‘Let’s go look for a house,'” Anderson says.

And that’s not how it should be done. Yes, it’s more fun to go look at houses than to sit in a lender’s office where you have to expose your financial situation. But that’s a backward approach, Conarchy says.

“You get preapproved, and then you find a home,” he says. “That way you’ll make a financial decision versus an emotional decision.”

5.  They don’t find the right agent who’s willing to help them through the homebuying process.

6.  Not getting professional help

New to the homebuying game? You’ll need a reputable real estate agent, a good loan officer or broker, and perhaps a lawyer.

Venturing into this process alone, without professional help, is not a good idea, says Anderson. While every rule has its exception, generally, first-time buyers should not try to deal directly with the listing agent, he says.

“If you are getting divorced, are you going to go to your husband’s attorney for help? Of course not,” he says. “Same here. If you go to a listing agent, they are only going to show you their listings. You must find a buyers’ agent to help you.”

If you hire an agent without a referral from friends or family, ask the agent to provide references from previous buyers. The same goes for loan officers or mortgage brokers.

“It’s very hard for first-time homebuyers because they don’t know who they are dealing with,” Anderson says.

It’s crucial to find a professional who will give you “truly independent advice,” Conarchy says.

Sometimes that means hiring a lawyer, says Castellanos.

“You are about to make what is possibly the largest single investment of your lifetime,” Castellanos says. “You want to make sure it’s done right.”

7.  Exhausting entire savings on the down payment

Spending all or most of their savings on down payment and closing costs is one of the biggest mistakes first-time homebuyers make, Conarchy says.

“Some people scrape all their money together to make the 20 percent down payment so they don’t have to pay for mortgage insurance, but they are picking the wrong poison because they are left with no savings at all,” he says.

Homebuyers who put 20 percent or more down don’t have to pay for mortgage insurance when getting a conventional mortgage. That’s usually translated into substantial savings on the monthly mortgage payment. But it’s not worth the risk of living on the edge, says Conarchy.

“I’d take paying for mortgage insurance any day over not having money for rainy days,” he says. “Everyone — especially homeowners — needs to have a rainy-day fund.”

8.  They don’t do enough to make their offer look appealing to a seller.

9.  They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.

10.   No Furniture shopping until the deal is closed

You have prequalified for a loan. You found the house you wanted. The contract is signed and the closing is in 30 days. Don’t celebrate by buying furniture or a car, if you plan to finance those purchases.

In this tight lending environment, lenders pull credit reports before the closing to make sure the borrower’s financial situation has not changed since the loan was approved. Any new loans on your credit report can jeopardize the closing.

Buyers, especially first-timers, often learn this lesson the hard way.

“They sign the contract and they want to go buy new furniture for the house or a new car,” Anderson says. “I remember one case where just before closing, the buyer drove to the office and said, ‘Look at my brand-new car.’ I told them, ‘You better go back to that dealership.'”

Luckily, the dealership agreed to wait a couple of days to report the loan to the credit bureaus, he says. Otherwise, it could have killed the deal.