Improving your credit may be at the top of your list if you are thinking of buying a home in the near future. The more aware you are of what determines your credit score, the easier it will be to improve it. Because lenders use risk-based loan pricing, having a good credit score can save you thousands on your home loan by receiving a lower interest rate. Your credit history is maintained by three credit bureaus: Equifax, TransUnion, and Experian. All three credit reports collaborate to give you an individual credit score that serves as a snapshot of how reliable you are in borrowing money. Commonly used credit scores are created by Fair, Isaac, & Co. (FICO) and here are the five different factors to determine your credit score.
1. Payment History (35 percent)
Your payment history includes information on credit cards, retail accounts, mortgages, installment loans, etc. This factor will negatively affect your score if you have the presence of bankruptcy, liens, past due items, accounts sent to collections, among 0thers.
2. Amounts Owed (30 percent)
This is the amount that you owe on a credit account. If you are using an amount on credit that is near the limit, this can negatively affect your score. This also takes into consideration the number of accounts with balances.
3. Length of Credit History (15 percent)
This is the amount of time that your credit accounts have been opened. The longer amount of time, the better.
4. New Credit (10 percent)
New credit is any recently opened lines of credit. Applying for many new lines of credit can negatively affect your score.
5. Type of Credit Used ( 10 percent)
This shows what type of credit you have opened (credit cards, mortgage, retail credit accounts, etc.) and shows how many of each type.
A credit score will range between 300-900, with the average being around 750. Just because you have a lower score does not mean that you will not be approved for a loan, you might just have to pay a higher interest rate and therefore more money over the life of the loan. Visit myfico.com for additional credit information and please contact us for recommendations for lenders in the North Atlanta area.
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