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Finance Your Home
About Credit
- What is my credit score?
- Why is my credit score important?
- Some additional credit score tips
- How to check your credit report
Your credit score is a very important consideration that a lender looks at when determining whether or not to approve your loan application. It impacts how much you may be pre-qualified / pre-approved for and what interest rate you will ultimately get on your home loan. Your credit score or FICO (Fair Isaacs Credit Organization) is a value that ranks your credit worthiness. The number ranges from 300
(low score) to 950 (high score) and is based on credit information gathered and stored by the three national credit bureaus: Equifax, Trans Union and Experian. All of your creditors (banks, credit unions, credit card companies, collection agencies, etc.) provide information to these bureaus regarding your payment history. Generally, the higher your credit score, the better your interest rate will be. The three credit bureaus use the same statistical model for everyone (Fair Isaacs Credit Organization is the most commonly used). The model analyzes your credit worthiness by applying scores to your credit patterns. By doing this, the model can forecast your future repayment performance. Each time you are granted a loan (i.e. credit card or auto loan), your payment performance is continuously monitored. This information is used to establish your credit score. It is critical to pay all of your bills on time and as directed, because on-time payments are reported and will result in a more favorable credit rating for you. Late payments are also reported and will not only cause a drop in your credit score, but could also result in increased interest rates with your creditors. Your creditors, such as banks and credit card companies, monitor your score from time to time. If they notice a late payment, even with another creditor, they can increase the rate you are charged, without even notifying you.
It is also important to remember that your credit score is often hit hardest by the most recent delinquencies. As you would expect, if the delinquency is repeated that also damages your score badly. If you have joint credit cards or loans, each party is equally responsible, no matter which person is paying the bills. The number of large outstanding balances is also a high indication of risk to the bureaus, as is the proportion of these balances relative to the credit limits. Finance companies will negatively impact your score more heavily than a credit card. A credit card indicator is relatively low, but does affect the score outcome. So avoid "buy now, pay later" offers - they signal a postponement of credit responsibility. Finally, the number of credit cards you have affects your score - even if your balances are zero, because they represent available risk. It is best to limit your credit cards to two or three.
You can and should review the credit information gathered by each of the three bureaus on an annual basis. We have provided their contact information for you below.
Equifax Information Services LLC 1-877-SCORE-11
Experian 1-888-397-3742
Trans Union LLC 1-800-888-4213