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FHA loans are one of the best options for young, first-time home buyers who have not had as much time to save for a large down payment or establish a high credit score.

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What Your Credit Score Says About You

What Your Credit Score Says About You
The term, “credit score,” tends to be a source of anxiety for many Americans, because they realize the weight it holds when it comes to getting a loan for nearly anything. A home, a car, even a cell phone. Taking the mystery out of this 3-digit number goes a long way to helping people understand and increasing their score, so here we go. 

What is a Good Credit Score? 

Think of your credit score like grades you get in school. A higher grade means that the work you turned in was on time and of higher quality. It measures your academic performance. Your credit score measures your creditworthiness, and you are graded bases on a number of factors, and credit bureaus calculate it on a scale between the range of 300 to 850.

The higher this score is, the more lenders will trust you. A high score represents a borrower who makes repays loans and makes his payments on time, making you less of a risk in the eyes of lenders, giving them more incentive to grant you credit with a lower interest rate.
What Goes into Your Credit Score? 

One of the main credit scoring formulas used in the U.S. is the FICO score. All major credit bureaus in the U.S.—Equifax, Experian, and TransUnion—calculate credit scores using FICO's algorithm and information they have collected about people's credit history. It is based on five factors: timely payments (35%), total debt (30%), the age of credit (15%), new credit (10%), and the type of debt (10%). Let’s talk about each of the aspects.

Timely Payments: The first factor is easy enough to understand; to be considered creditworthy, you need to make payments on your loans on time. This can mean making your mortgage payment on time, and even your credit card balance.

Total Debt: Your total debt, which affects 30% of your score, is the amount of money you owe, relative to your credit limits. The more you owe, the riskier it is for you to take on new debt, lowering your credit score.

Age of Credit: Having a longer, more established credit history is advantageous because it gives lenders more information about your spending habits. A longer history of reliable borrowing means your score will be higher.

New Credit: This refers to lines of open credit. If a borrower has opened a number of new credit lines in a short amount of time, it indicates to lenders that they are having financial trouble and cannot manage their money well.

Type of Credit: This is especially helpful for new borrowers who don’t have a long credit history. It helps to have different types of credit lines because it shows lenders that you are able to handle various finances.

While it is good to know what goes into your score, you also need to know what doesn't affect your credit rating. While credit applications can affect the score, "soft" credit checks do not. The score is not based on sex, race, marital status, religion, nationality, or age. Information about where you live, your job, salary, or the interest rates on your credit accounts is not factored into the score either.


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FHA Loan Articles

When not to Consider Refinancing a Home

There are plenty of reasons to delay plans to refinance a home. One reason has made big headlines. When borrowers face higher interest rates than originally approved for, that is a good reason to wait to refinance.

How FHA Construction Loan Draw Disbursements Work

When you are approved for an FHA One-Time Close Construction loan, you get a single loan that pays for both the costs to build the house, and serves as the mortgage. One application, one approval process, and one closing date.

Mortgage Rate Predictions for 2024

In the last days of November 2023, mortgage loan rates flirted with the 8% range but have since backed away, showing small but continued improvement. What does this mean for house hunters considering their options to become homeowners soon?

Is It Cheaper to Buy a Home With an FHA Loan or to Rent?

In May 2023, USA Today published some facts and figures about the state of the housing market in America. If you are weighing your options for an FHA mortgage and trying to decide if it’s cheaper to buy or rent, your zip code may have a lot to do with the answers you get.

Why Do FHA Loans Have Borrowing Limits?

FHA loan limits serve as a crucial mechanism to balance financial sustainability, regional variations in housing costs, and the agency's mission to promote homeownership, particularly for those with limited financial resources.

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