If you’re in the pre-mortgage application phase, you’ve probably heard the term ‘credit check’ thrown around. You know how credit cards work, but maybe you’re not so sure how credit scores do. Have no fear, this is a broken-down explanation of everything you need to know about credit scores.
What is a Credit Score?
There’s a very important thing you need to understand when applying for a mortgage. To your surprise, there are three types of credit scores: general credit, true credit, and your FICO score. When an underwriter decides the fate of your mortgage approval, they evaluate your FICO score. This type of score, created by the Fair Isaac Corporation, differs from others because they more accurately portray credit worthiness. FICO scores evaluate timeliness on credit payments, current level of debt, length of credit history, and all existing credit accounts.
What’s A ‘Good’ FICO score?
FICO scores are calculated into different categories. Payment history makes up about 35%, accounts owned is 30%, length of credit history is 15%, new credit is 10% and credit mix is 10%. Most FICO scores range between 300-850. Anything above 650 indicates a good credit history. Individuals with credit scores below 650 often report they found obtaining financial assistance difficult when applying for a home loan.
How To Keep/ Improve a FICO Score
A way to keep/improve your FICO score is know what your score is. Get a credit report every 12 months, so you stay up to date on your score. Another way to improve your score is to set up payment reminders on your phone—that way you know when your deadlines are sneaking up.
Most importantly, don’t be afraid to ask for advice. We will be happy to share our expertise and insight with you to help figure out the best option for financing your new home.