When you buy or refinance, your credit score is one of the first things a lender looks at. Your credit score reflects how reliable you are as a borrower, and is determined by your track record of borrowing and repaying banks, credit card companies and other lenders. Factors and their weights in scoring system developed by The Fair Issac Corporation (FICO) are:
Length of Credit History (15%) – The longer you’ve been borrowing, the better.
Amounts Owed (30%) – Having too much outstanding debt could adversely impact your score.
Payment History (35%) – Lenders want to see that you pay regularly and pay on time. Even one missed or late payment could affect your score.
New Credit (10%) – If you’ve recently opened new credit card accounts, lines or loans, it may have a negative effect on your credit score.
Types of Credit Used (10%) – Lenders want to know what kind of credit you’re already using—standard credit cards, store credit cards, student and car loans, etc.
FICO scores range from 300 to 850, and anything above 680 is considered good. Excellent scores, usually above 740, can help qualify you to get the best rates. To get a handle on your credit history and score, you can order one free credit report per year from annualcreditreport.com, and buy a copy of your FICO score from MyFICO.com .
If your credit score isn’t what you’d like it to be, there are ways to improve it. Contact us, our experienced loan officer may help you to find areas of improvement. A small increase in FICO score could translate into a lower rate and big savings over the life of your loan.