A Brief Guide To Credit Scores - Smiling man and woman at home going over paperwork with pens in hand.


How much do you know about credit scores, how they’re calculated, and what they’re used for? Ramp up your knowledge with this helpful guide so you know what to expect next time you apply for credit. 


What’s the Score?

Your credit score is a part of the package of information lenders use to decide whether or not they will lend you money or extend credit. Other factors include things like your employment history and income and their own internal scoring systems.
 


There are two primary credit scoring models you need to know about: FICO® and VantageScore. Each may be used to determine your creditworthiness: that is, how likely you are to pay off your loan. Your score can influence your interest rate, length of loan, and even how much you can borrow.

  • Your FICO® Score is based on information received from the three major credit bureaus, Experian, TransUnion, and Equifax.

  • Your VantageScore, meanwhile, was actually developed by the three major credit bureaus to compete with FICO.


Calculating Scores 

Both scores use a range of 300-850. A higher score indicates to lenders that you are fiscally responsible and the risk of lending to you is low.


FICO Fast Facts:

  • Is not influenced by current interest rates on loans you already have.

  • 45-day window for rate shopping before credit is affected.

  • Six months’ of credit history required to establish a FICO score.

  • Has a separate Auto Score specifically for car loans.


VantageScore Fast Facts:

  • Does not factor in paid-off collections when calculating your score.

  • Late mortgage payments are weighted more than other late payments.

  • 14-day window for rate shopping before credit is affected.

  • Can produce a score just a month or so after credit line is opened.

​The average FICO score is 711; the average VantageScore is 688.


Quick Credit Tips

  1. Pay on time, every time. Even if you’re only making the bare minimum payment (but try to pay more!), meeting that debt obligation is key to building good credit.

  2. Pay off bills with the highest interest first. You’ll reduce the amount you pay in interest over time, saving you money in the long run.

  3. Or, conversely, pay off the smallest bills first. This is the theory behind Dave Ramsey’s Debt Snowball Plan: You’ll see results quickly, and stay motivated.

  4. Put “bonus” funds toward paying down debt. That includes a bonus from work, a tax refund, or any other lump-sum payment you receive. (But only if you have a savings cushion built up first!)

 

Are you interested in seeing how your current credit score might affect a new mortgage? Let’s take a look together. Give us a call at 1-888-254-9500 to speak with one of our Mortgage Specialists today!

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