About Credit Scores

About Your Credit Score

WHAT ARE CREDIT SCORES

Lenders use credit scores to assess risk. They determine whether a borrower is approved or declined for a mortgage, credit card or other type of credit based on this number. The score is a numerical value. It ranges from a low of zero to a high of 850 or 900 depending on the credit bureau.

HOW THEY ARE USED

The higher your credit score is, the more likely the lender believes you will repay the loan in a timely manner.

  • A higher credit score could help you get a lower interest rate
  • You can get a free credit report from all three major bureaus at www.AnnualCreditReport.com.
  • Your credit score doesn’t have to be perfect to get a loan. However, most lenders want buyers to have a minimum of 620 but FHA will consider as low as 500.
  • Less than 30% is a good target credit utilization percentage. Credit utilization is the percentage of credit you have already used compared to your available credit. Higher amounts could negatively affect your credit score.
  • There is a difference between a soft and a hard credit pull.  The former doesn’t hurt your score, but the latter can lower it a few points.  Try to avoid multiple hard inquiries.
  • “Good” types of credit: Credit cards, bank loans, car loans and home loans. Lenders prefer a mixture of different types of loans over having a single type.
  • Be aware that opening new credit accounts after you apply for a mortgage can hurt or even prevent you from being approved on the mortgage.

CREDIT SCORE COMPONENTS

There are five components to making up a credit score.  Payment history, like paying on time, contributes 35% to your credit score.  The amount you currently owe counts for 30% of your score as it figures into credit utilization. 

Moreover, length of time you have had credit established accounts for 15% of the score. New credit and the types of credit accounts comprise 10% of the score each.  Opening several accounts in a relatively close period will negatively affect your score.  It isn’t necessary to have all types of credit like credit cards, installment loans, finance company accounts and mortgage loans. However, it is necessary to have a mix of “Good” credit types.

NEED HELP?

If you need help increasing your score, a trusted lender that provides your pre-approval can also make suggestions that would improve your credit.  Contact us by CLICKING HERE. Or call us at (510)-244-0081 to get a personal recommendation of a trusted mortgage lender.