Understanding Your Credit Score
Posted on April 2, 2021
Having a great credit score is essential to getting the best rates on mortgages and other loans. In order to get a great credit score, you first need to understand what a credit score is, how to increase it, what lowers it and how it affects what type of rates and loans you can get.
What is a credit score?
A credit score is a number used to assess your financial well-being. The higher your score, the less of a risk you are to lenders. Your credit score is based on the number of open accounts you have, your total debts, your repayment history, and other financial factors. When you are looking to take out a loan, lenders often look at your 3 credit scores from Equifax, Experian, and TransUnion. Each Credit bureau has a different credit-scoring model, so it is a good idea to keep each score in check and do your best to keep them all as high as possible.
How to Increase Your Score
If you’re unhappy with your current credit score, there are several things you can try to give your score a boost. It’s important to remember that changes won’t happen overnight. Allow time for these changes to make a difference in your score.
- Pay your bills on time.
- Check if you have any collection accounts open. Pay them off or get them removed from your report
- Don’t close a credit card account or apply for too many new ones
- Pay down your credit card balances to keep overall credit use low
- Work with a credit repair service to improve your score
How does it affect mortgage rates/ loan amount
As stated above, the higher your score, the less of a risk you are to lenders. While each lender and loan qualifications are different, here is a general idea of what each credit score is considered:
- Exceptional: 800 and above
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
Become aware of your credit score now and avoid a wait time when you find your dream home. When in doubt, you can always reach out! One of our experienced mortgage professionals can help you understand where you’re at and what you can start doing now to be ready to buy a house.