First, one must define exactly what a credit score is. According to the FCIC, a credit score is a number that helps lenders and others predict how likely you are to make your credit payments on time. This is crucial when applying for a mortgage.  What is actually considered a “good score”?  When discussing your score, most lenders usually are referring to the  FICO® score developed by Fair Isaac Corporation. FICO scores range from 30-850 with the average score of 650. There are three national credit reporting agencies (also called credit bureaus): Equifax, Experian and TransUnion that tally you score. In most loans a minimum of 620 credit score is needed.  How is the score calculated? There are five areas of your credit that are reviewed. Your payment history is generally 35% of your score. Have you paid on time? How much you owe is 30% of your score. The more money you owe, no matter how well you pay, the lower your score. The length of your credit history is 15% of your score. This is often why younger people get turned down for loans, there simply was not enough history. New credit also effects your score 10%.  The fifth and most ambigious area is the “other factors”. Basically this looks at your type of credit, lines of credit etc and can affect up to 10% of your score. 

 You got the basics on how your score is calculated but you wonder why you have three different scores! Keep in mind that each credit reporting agency calculates your score and each score may be different because the information sent about you is different. Most mortgage lenders will look at all three scores and toss the highest and lowest! If a buyer has the three scores 625, 730 and 650, the score used would be a 650.

 There are some great tips that you can use when reviewing your credit score. The best and cheapest tip is to review your credit reports for accuracy. Mistakes on your report will affect your score. Check your credit report once a year, its free and a great way to spot identity theft.

 Keeping your score high is also easy. Pay your bills on time, keep your balances low on credit cards and watch your debt. These three steps can maintain a high score and will allow you to get more mortgage for less money.

 Your credit scores matter on how low your mortgage will be, how much interest you pay and even how much of a down payment you must make. Take matters into your own hands and clean up your report prior to looking for a home. Its a great way to start the search!

Palm Coast Real Estate