Understanding Your Credit Score
What's in a credit score?
A credit score, is a number between approximately 400 and 850 that gives lenders quick insight into how you have managed your finances. Some of the information used to determine a credit score includes:
- Payment History—your on-time and late payments for credit cards, loans, mortgages, car payments and retail accounts.
- Amounts Owed—amount you owe on all of your credit accounts compared to the amount of credit available to you.
- Length of Credit History—how long your accounts have been opened and activity on open accounts.
- New Credit— new accounts and new inquiries for your credit report.
- Types of Credit Used—number of credit cards, loans, retail accounts included in your recent credit history.
For the big picture, lenders use more than just your credit score.
Your credit score is only a portion of the information that lenders review when you apply for a mortgage. In addition to your credit score, lenders review your employment history, income), collateral, assets and your overall credit history.
Higher scores can lead to lower interest rates on mortgages. Just keep in mind it is not the only thing lenders use to calculate your risk.
How can I raise my credit score?
It can take time to raise your score, but it will be well worth the wait. A few things that can help your score move-up:
- Pay your bills on-time
- Keep your credit account balances low
- Start to pay down and pay off your debt
- Avoid opening a lot of new accounts in a short time-frame
Get your score before you apply for a mortgage.
Take the steps to find out what your credit report says about your credit history. You can get a free report from a variety of services—and most are available online. Once you get your report, you will want to review it for any errors and start to analyze what you can do to strengthen your credit score.
My credit isn't excellent. Can I get a mortgage?
Many people move forward with getting a mortgage before their credit score reaches 700, which is generally considered a "good credit" score for many lenders. One of the main reasons you want to have a good score is so you can secure the best possible interest rate for a mortgage.