What is a Credit Score?

Understanding Your Credit Score

When it comes to buying a home, your credit matters. Specifically, your credit score matters. Lenders use your credit score to determine what loan program and interest rate you qualify for. A credit score over 720 is considered good credit, and a credit score between 750-800 is considered excellent credit.

What if your credit score is less that 720?

A credit score of 600 or higher can still qualify you for a home loan, but it may come at different terms than if you had a score of 720 or higher. Good and excellent credit can often get you better loan terms, but that doesn’t mean you can’t qualify for a loan with a lower score. Your loan advisor can help you explore all of the options available for you with your current credit score.

What is Your Score?

Your 3-digit credit score is a summary of your credit health. To come up with your score, a complex mathematical formula analyzes your credit behavior based on five main categories of data.

Payment History:

One of the most important factors for your credit score is whether or not you have paid past accounts on time. A good track record of on-time payments will generally increase your credit score, as where negative factors such as late payment, liens, judgements, foreclosures, or bankruptcies will generally decrease your credit score. Your payment history accounts for 35% of your overall score.

Amount Owed:

The percentage of your credit card limit that you have used is known as your credit card utilization (CCU). A good rule of thumb is to aim for a CCU of less than 30%. Both the CCU of individual accounts combined are considered. When it comes to credit card utilization, less is more. Your credit utilization account for 30% of your overall score.

Length of Credit History:

The amount of time your credit accounts have been open impact your score. When it comes to improving credit history it may be beneficial to leave a card open after you have paid it off, rather than closing it. When you close a credit account, it no longer applies toward your credit history. A longer credit history is better for improving credit scores. Your length of credit history accounts for 15% of your overall score.

Credit Inquiries:

Opening up too many new credit accounts in a short period of time sends a red flag that you may be a risky borrower and can damage your credit score. It’s okay to request and check your own credit, but multiple inquires to open new accounts can be damaging. Credit Inquiries stay on your credit report for two years, although they may only count against you for one year. Looking for a loan? Don’t worry. Shopping around for the best rate on a home won’t count against you either. Recent credit inquires count for 10% of your overall score.

Credit Mix:

A mix of credit cards, installment loans, retail accounts, and mortgage loans isn’t one of the most important factors for your credit score, but it is important if you don’t have a lot of other information to build a score. If your credit history is limited to one type, such as retail accounts, it could result in a lower score than if you had a mix of credit types. Your credit mix accounts for 10% of your overall score.

For more information about Credit score or help with guiding you on fixing your credit go to our home page or give us a call.

At Old Republic Mortgage, we answer questions about credit reports every day. Give us a call at (509) 447-5626

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