To gain financial security and achieve the dream of owning a home, it’s essential that you understand the basics of credit. Credit scores are one measure by which lenders, banks and other companies evaluate your worthiness as a borrower for mortgages and other types of loans. In this week’s blog, we’ll look further into FICO scores, which are the most widely used type of credit score reported by the three main credit bureaus. When you gain a better understanding of your credit, you can make any necessary changes to improve it and secure a mortgage with great terms and rates. When you’re ready to learn more about your FICO Score, the professionals at Lucey Mortgage Corporation in Mount Pleasant, SC, can help.
A Credit Snapshot
FICO Scores were created by the Fair Isaac Corporation, which developed this credit rating system in the 1960s to help determine a person’s credit risk. The three main credit reporting agencies – Experian, TransUnion, and Equifax – all use FICO scores. Your FICO Score is a sort of snapshot of your overall credit report, which includes information about your credit accounts, credit inquiries, public records, and any overdue debt. FICO Scores can only be calculated if you have sufficient credit history, that is, at least one credit account that has been open for six months or longer.
The Breakdown: Credit Score Factors
Your FICO SCORE is a number between 300-850. The higher your score, the better. Your credit scores may be different from each of the three credit bureaus, but typically they are within a few points of one another. Certain factors affect your FICO Score more than others. Your FICO Score is broken down in the following percentages:
30% is based on how much debt you have. It may seem obvious, but keeping your debts as low as possible and spending less than you earn each month is one of the best ways to improve your credit score.
35% is based on your payment history. Making payments on time each month shows lenders that you are a reliable borrower.
10% is based on how many new credit lines you have. It’s important that you do not open several new lines in a short period of time. Inquiries into your credit report can also affect your score.
15% is based on the average length of your credit history. There is little you can do to affect this, but over time, the longer you keep accounts open, the better.
10% is based on your credit mix. Lenders like to see a varied mix of accounts, which may include credit cards, retail accounts, mortgages, finance company accounts and installment loans. While a healthy mix of accounts can help improve your score, you should not open new accounts unless you truly need them.
A Closer Look at Your Finances
It’s important to note that lenders look at your FICO Score in addition to other factors when making lending decisions, such as your income and employment history. If you are working towards a specific goal, such as home financing to purchase a home, a mortgage professional can give you further insight. If you would like to purchase in Mount Pleasant, SC, the team at Lucey Mortgage Corporation can offer a free quote. We have worked in the local area for more than 26 years, and we’d love to speak with you. Contact us to get started.