You’ve seen the commercials for online credit score checks, you’ve heard credit scores are super important for a home purchase, but do you really know what the purpose of a credit score is and how it’s determined?
What is a credit score?
A credit score is a 3-digit number calculated from a report that displays a variety of different pieces of data based on several factors and is used by lenders to determine your “worthiness” for a mortgage, loan or credit card. Your credit score is crucial in determining whether you will be approved for a loan or not.
What factors determine your score?
Your credit score is determined by 5 factors: 35% Payment history, 30% amounts owed, 15% length of history, 10% new credit, and 10% types of credit used.
What is a good credit score?
720 or higher is typically recognized as a good credit score.
Know your score and ready to start searching for a home? Click here to get started.
How can I build good credit?
With payment history being the largest deciding factor of a credit score, paying bills on time can boost your credit score. . Late payments can hurt your score and cost you in fees and penalty interest rates.
Keep your credit balances low, preferably no more than 30% of your credit utilization. (Credit utilization refers to how much of your available credit you use on a monthly basis. It is your total open credit card balances divided by your total open credit card limits.
Keep credit accounts open for as long as possible. Keeping accounts open can help with the length of payment history and credit utilization. However, don’t open too many new accounts at once.
How can I check my credit score?
Under federal law, all consumers have the right to free annual credit reports from each credit-reporting agency. Try websites like CreditCarma.com and FreeCreditReport.com
Here’s the catch. You are not entitled to a free credit score. There are several ways to get your actual credit score, though. For example, several credit card issuers provide your credit score for you on your statements and online accounts.
Have any more questions about your credit score? Feel free to leave us a comment or send us a message.
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