Credit Score 101
When you’re preparing to buy a new home or refinance your mortgage, there’s a good chance you are thinking closely about your credit score.
This number plays a large role in a variety of aspects of your mortgage, including what financing options are available to you, the interest rates you’re offered and the amount of money you are eligible to receive.
What is a credit score? Yours is a three-digit number that is given to you based on your creditworthiness, or the likelihood that you will repay a debt. Lenders and banks utilize a credit score to determine whether or not they will approve you for a line of credit, like a loan, credit card or mortgage.
Every person has 3 main credit scores from the 3 largest bureaus—Equifax, Experian and TransUnion. These scores make up your credit reports, which are then converted into a score using a scoring model like FICO.
Your score can be influenced by your current outstanding debts, if you make payments on time and more. Since there are 3 different bureaus, you could have significantly different scores across the board.
How Credit Scores Are Calculated
- 35% Payment History: Have you paid your outstanding credit accounts and bills on time? This is the biggest thing a lender wants to know before considering approval.
- 30% Amount Owed: The fact that you currently owe other lenders money doesn’t mean that you won’t be approved, but the percentage of your total utilization will be factored in. If you owe $5,000, but that’s also 98% utilization of your credit, your score will probably be lower.
- 15% Length of History: As a general rule of thumb, a longer period of credit usage will get you a higher FICO score. However, if you have a strong showing across other categories, you can still have a high score.
- 10% Types of Credit Being Used: This part of how credit scores are calculated works with what types of credit you’re utilizing currently, including retail accounts, loans, finance company accounts, credit cards and mortgages.
- 10% New Credit: If you have opened another credit account or loan recently, that will be taken into account. Opening many accounts in a short period of time can flag you as a high-risk borrower.
Partner with Equity Mortgage for Your Dream Home
Regardless of your current credit score, Equity Mortgage will be there to support you. I am experienced in getting homeowners the best possible mortgage product for their situation. Since every client is in a different situation, I encourage you to get in touch and learn how I can help. Contact us today by calling 443-471-4310. I look forward to hearing from you!