Your Guide to Raising Your Credit Score

You’ve likely heard of the term “credit score,” but how familiar are you with what it represents? Here is everything you need to become an expert at managing your credit.

What’s A Credit Score?

A credit score is a three-digit number that reflects your creditworthiness. It is a representation of your credit history that informs the lender of the probability of repaying your debt. It takes into account things like how long you’ve had credit, how much credit you have, and how much of it you use.

Your credit score also considers whether or not you pay your bills on time. When you apply for credit, such as a home loan, lenders and banks will use this number to determine whether or not you will be accepted. And if you’re accepted, this number will have an impact on the terms.

Your Guide to Raising Your Credit Score

How Are Credit Scores Calculated, and Who Does It?

The three major credit bureaus (Equifax, Experian, and TransUnion®) use a credit-scoring algorithm to calculate your credit score. The FICO® credit-scoring model is the most widely used credit-scoring model.

It's focused on a variety of variables, like credit use and available credit, but never on personal data like race, gender, or ethnicity. The average credit score ranges from 300 to 850.

What Is A Good Credit Score?

What makes a "healthy" credit score varies depending on the lender, but one constant remains: the higher the credit score, the better. A higher credit score indicates to lenders that you are less likely to default on your loan, making you eligible for more credit and better loan terms.

Credit scores of over 670 are deemed strong by most lenders. A credit score of 740 or higher is excellent, and any score of 800 or higher is outstanding.

What Affects My Credit Score?

The FICO® credit-scoring model is considered industry-standard. Here's how it breaks down:

  • Payment History
    Your payment history is the most important factor in FICO® scoring, accounting for around 35% of your overall score. On-time and late payments are included in the payment history.

  • Amounts Owed
    The amount you owe and the amount of credit you have available are the next two most important factors. It accounts for roughly 30% of your total ranking.

  • Length Of Credit History
    The amount of time you've had credit accounts for 15% of your FICO® ranking. Your credit score will rise as your credit history grows.

  • Credit Mix
    Car loans, lines of credit, credit cards, and retail accounts make up about 10% of your FICO® ratings, and include items like car loans, lines of credit, credit cards, and retail accounts. The more credit forms you have that are well-managed, the higher your score would be.

  • New Credit
    New credit accounts for 10% of your overall ranking, primarily how many credit accounts you've recently opened. If you open too many new credit accounts in a short period of time, your credit score will suffer.

Why Do I Have Several Credit Scores?

It's possible to have many credit scores because various scoring models exist.

It's also conceivable that one credit bureau has more knowledge than the others because a borrower neglected to notify all three credit bureaus of a shift. As a result, each bureau will assign you a different score.

Depending on the form of lender, the credit score will also vary. A mortgage lender, for example, will use a different credit-scoring model than an auto lender.

There's usually no need to be worried as long as the scores are close. Request a full credit report to investigate the difference if your ratings differ significantly or if there has been a significant improvement in your performance.

How To Check Your Credit Score

One of the three major credit bureaus offers a free copy of your credit report once a year. Credit reporting is also available from several financial institutions and credit card providers.

We will also request a copy of your credit report and check it with you if you apply for a mortgage or refinance with us.

Your credit score is one of the most important factors in having a home loan accepted. Also, people with bad credit may get approved for a mortgage. Contact us today to find out how much house you can afford and to learn about government-backed home loans for people with bad credit.