An Important Factor in Home Buying
Your credit score affects many of life’s most important decisions. Your home, car, and job all heavily rely on the health of your credit score. While you may know what your score is, you may not realize where it comes from and that there are steps you can take to raise it. Before making a major purchase, make sure you understand your credit score with our tips below.
What is a Credit Score?
Your credit score is a three-digit number that is one of your most valuable assets. It is based on a math algorithm that is derived from detailed information about your credit history. While your score encompasses your past, it plays a crucial role in your financial future. It is important to know your credit score because it is one of the biggest determining factors when it comes to getting a low rate for borrowing money when buying a home, car, or other major purchase. While there are many different types of credit scores, the most widely used model is FICO®.
What Factors go into Calculating My Credit Score?
As a major component of your financial standing, it’s important to understand what factors affect your credit score. The five general categories below are all incorporated into calculating your credit score:
New Accounts and Client Requests
Length of Credit History
What is a Good Credit Score?
Most credit scores fall within the range of 301 to 850. The higher the number, the better your credit will be. While there is an industry standard pertaining to what is considered good credit, all lenders have their own definitions of what an excellent credit score would be. Some lenders may offer a line of credit to anyone, but charge higher interest rates for those with lower credit scores. Other lenders may be more selective regarding those eligible to be offered credit. For a general idea of where your credit score falls, use the guide below.
Excellent Credit Score
Anything above a score of 750 is usually considered excellent credit.
Good Credit Score
Typically, good credit is anything that falls between 700 and 749.
Fair Credit Score
If you fall between 650 and 699, you are perceived to have a fair credit score. The country’s average FICO score in 2015 was a 695.
Bad Credit Score
Anything below a 650 is usually considered a bad credit score.
How to Improve Your Credit Score
There is no reason to fret over your present credit score. Your score is constantly fluctuating, and there are several actions you can take to increase your score. Follow our tips below to help improve your credit score.
Change Your Repayment Habits
One of the best ways to improve your credit score is to begin practicing good habits. Start off by catching up with any missed payments, so you are not constantly working against yourself. Once you are back on track with your payments, be sure to always pay bills on time. You’ll be surprised to see how much this can help improve your credit score. You should also pay the total balance every month, not just the minimum payment. If you are having trouble with your payment amount or with overdue payments, be sure to contact your creditors or a credit counselor for help.
Manage Your Debt
If you have a large amount of debt, make sure you are paying it off rather than moving it around. Having a large “revolving credit” debt, which means having a large credit card debt, can hurt your credit score. It is not wise to open a bunch of new credit cards that you don’t need just to improve your score. This can hurt you in the long run. Be sure to only apply for and open accounts if they are absolutely necessary.
Keep an Eye on Your Credit
No matter what your score may be, it is crucial that you are constantly keeping your credit score in mind. When opening a credit card, it’s important to manage the spending on it responsibly. Just because you have a credit limit of $1,000 on the card doesn’t mean you should be charging that much every month on it, especially if you cannot pay it all back. Prove to lenders that you can be responsible by not ever spending more than 50% of your credit limit. Also, keep in mind that any accounts you close will still be incorporated into your credit score.
Contact a Credit Expert Today
For more information about applying for a conventional loan or to better understand your credit score, please contact us today. As the nation’s leading privately held mortgage banker and brokerage firm, are happy to assist you with anything you need regarding your credit score.