Credit Score

How to understand your credit score

Favorable credit scores are important when applying for home loans

Credit scores arent just a great way to gauge your financial health. Theyre also an important tool that can impact your ability to take on credit, secure loans with favorable rates and terms, and your overall access to lending and funding.

But what are they?

How is ones credit score determined, and what does it mean? Who decides what your credit score is, and how can you make sense of this important measure?

Is there more than one type of credit score?

To learn more, read on.

What is a Credit Score?

A credit score is essentially a number thats calculated using your credit history and designed to help estimate your creditworthiness. A credit score might be used to predict your future likelihood of paying bills on time, paying off loans quickly, keeping up with a home loan, and keeping up with lines of credit effectively.

Is There Just One Credit Score?

The short answer is—no. In fact, there is a mix of credit scores out there. But, for most people, there are a few credit scores that can be especially important to pay attention to.

In The United States, there are three major credit bureaus. These credit reporting agencies use information that they receive from lenders and creditors and public records and generate credit reports for individuals.

These three credit bureaus—Equifax, Transunion, and Experian use the FICO Scoring model to make credit scores.

FICO Scores, developed by FICO, take five categories of data into account:

  • Payment History (weighted 35%)
  • Amounts Owed (weighted 30%)
  • Length of Credit History (weighted 15%)
  • Credit Mix (weighted 10%)
  • New Credit (weighted 10%)

These make up a score of between 300 and 850, the latter being as high as possible, the former as low as possible.

Whats a Good Credit Score?

For FICO scores, FICO offers some helpful guidelines to help understand whether a score might be considered good or bad. Heres how FICO breaks some of the score ranges:

  • Less than 580 – Poor
  • Between 580 and 669 – Fair
  • Between 670 and 739 – Good
  • Between 740 and 799 – Very Good
  • Above 800 – Exceptional

Where do I Find My Credit Score?

In the United States, individuals are entitled to get their credit score for free from the three major credit reporting agencies once a year. This can be extremely helpful, as its not only a free service, but it can help you determine what your credit looks like, which can be relevant to lenders and creditors as well.

In order to receive your free credit reports, the FTC explains that you can navigate to or call 1-877-322-8228 in order to request your free credit reports. From there, youll be able to see your credit scores as well.

The Bottom Line

Credit scores are an important tool used by financial institutions, lenders, creditors, and individuals in order to gauge creditworthiness, determine if one is a good fit for a loan and much more. Credit scores can impact much of our financial lives. As such, it can be extremely helpful to understand what a credit score is, where one can find one, and how they work.

If you are concerned about your credit score and how it will affect you with a home loan, then contact us today. We can help you understand what you’ll need and all your requirements.