First of all, what is a credit score?
A credit score is a number that lenders use to estimate a borrower’s risk. When it comes to purchasing a home, a credit score plays a huge role in determining the interest rate a lender is willing to offer. Whether you’re a first time home buyer or looking for another home, it’s a good idea to obtain copies of your credit report, that way you know what you can qualify for. Now that we know what a credit score is, what factors affect it and how can you improve it? By understanding the 5 factors that can help or hurt your score you will be on your way to building a healthier credit.
- Payment History (about 35%). This is the largest portion of your credit score. Make sure that you make payments within 30 days as this can negatively affect your overall credit score. Always pay your bills on time. Late payments are probably the worst thing you can do.
- Amounts Owed (about 30%). Borrowing is certainly not a bad thing, but being in a lot of debt is. Make sure you don’t charge over half the limit on all of your credits.
- Length of Credit History (about 15%). Having a long payment history shows lenders you have paid your bills on time and will be likely to do so in the future. So, if you’re thinking about tossing your old credit cards you may want to think again. Keeping your credit cards are important in order to keep your credit history associated with each card.
- New Credit (about 10%). The fourth portion of your credit report has to do with the amount of accounts you have. Each time you apply for a new credit card it appears in your credit report. Applying for too many credit cards in a short period of time is seen as risky.
- Types of Credits in Use (about 10%). Spread out your debt among different types of loans. So for example, having some debt in car loans, student loans, and mortgage is better than having all debt on only your credit card.
Take a breath! It’s not all that bad. When it comes down to it it’s all about sticking to a budget and making payments on time.
Our in-house Finance Department will advise you on credit issues you have. We strive to make the home buying process simple and stress-free! Call us today at 888 874 8692!
2 Replies to “How is Your Credit Score Determined?”
I have never looked into this. I always just agreed with what number they gave but had no idea how they came up with that number. Thank you for the knowledge.
Hi Bob. Surprisingly not many people know what factors influence their credit score, which is why we thought this post would be appropriate. We are glad to provide you with useful information!