What Your Credit Score Says About You
August 23, 2022
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.
------------------------------
RELATED VIDEOS:
You're Almost There When You Get Your Loan Approval
Learn About the Mortgage Insurance Premium (MIP)
Pre-approval Starts the Mortgage Process
FHA Loan Articles
October 17, 2022If you’ve begun your search for a new home and are looking into mortgage options, you’ve likely heard of mobile, manufactured, and modular homes. While people working in real estate throw these terms around easily, it might be something that leaves everyday homebuyers confused.
September 17, 2022The FHA sets these limits annually according to the location and type of home, and it represents the maximum loan amount the agency will insure. Approved FHA-lenders can set their own requirements in addition to the FHA’s criteria for borrowers, such as higher credit scores.
August 23, 2022Credit scores tend to be a source of anxiety for many Americans, because they realize the weight they hold when it comes to getting a loan for nearly anything. Taking the mystery out of this 3-digit number goes a long way to helping people understand and increasing their score.
June 16, 2022It’s a great option to consider if you want to build your dream home on your own land instead of buying someone else’s already-lived-in house. FHA One-Time Close mortgages are also referred to as single-close construction loans--you’ll see these terms used interchangeably.
May 7, 2022The appraisal process is a very important part of buying a home. When you are budgeting and planning for your loan, you may want to set aside some extra funds in case there are corrections required as the result of an appraisal.
