Credit Score FAQ

Many people are confused about how the system of credit reports and credit scoring works in the United States. This article attempts to answer many common questions about the credit scoring system with an emphasis on how credit scores relate to getting a home loan or mortgage. 

First of all, what exactly is a credit score?

A credit score is a number that is designed to provide a numerical assessment of an individuals creditworthiness, which represents the perceived likelihood that an individual will pay their debts in a timely manner. It is provided to financial institutions and other businesses by credit bureaus.

What is the best credit score?

The highest possible FICO score is purported to be 850 and the lowest score is 300.

What is a good credit score?

As with many things in life, it depends on who you ask. According to Fair Isaac Corporation, the creators of the FICO scoring model, a score above 700 is good. However, for the purpose of getting a home loan each lender has different guidelines and you should consult with your bank or mortgage broker for more specific information.

What is a bad credit score?

As it relates to home loans, it has been reported that scores below the mid-600s will generally only qualify for subprime mortgages, however, again each lender has different guidelines and you should consult with your bank or mortgage broker for more specific information.

What is the average credit score?

According to Fair Isaac, the median credit score is 725, however, only about 75% of the eligible population (over 18) have credit scores so the data is incomplete.

Where can I get my credit score?

You can order your FICO credit score from myfico.com. Also, when you apply for a home loan many mortgage brokers will provide your score if you ask them.

Where can I get my free credit report?

You are entitled to get one free copy of your credit report per year from each of the 3 credit bureaus. Go to www.annualcreditreport.com to order your free report. Note that there are many other sites where you can buy your report, but this site is the official site created to comply with the Fair Credit Reporting Act.

How will my credit score affect my home loan or mortgage?

When you apply for a home loan or mortgage, the lender will request a copy of your credit report and the accompanying credit score from one of the credit bureaus. The higher your score is, the easier it will be for you to get a home loan. Your credit score will also affect the interest rate that the lender offers you, which influences how much your monthly payment is.

How do they calculate credit scores?

The credit scores are generated based on statistical model based that incorporates the information contained in your credit report. There are several different categories of information that are used, such as: Payment History, Amounts Owed, Length of Credit History, Types of Credit Used, and New Credit.

How do I improve my credit score?

There are many different ways to improvde your credit score, however, it is important to understand that your credit score does not necessarily update immediately and that it may take time for any changes to be reported to the credit bureaus. The first step is to obtain a copy of your credit report to see what information is being reported about you. If there are any inaccuracies, then you will want to take the steps necessary to correct the information on your report. Some of the other things that you can to do improve you credit report are:

  • Pay down your credit card debts
  • Make sure you pay your bills on-time every month, especially credit cards and loans
  • Request to have your credit limits increased
  • Keep your oldest credit accounts open
  • Don't apply for new credit cards too often

What is a Credit Bureau?

They are the businesses that create, store, and sell the information in your credit files. In the United States, there are three major credit bureaus or credit reporting agencies: Experian, Equifax, and TransUnion.

Where does the information on my report come from?

The information contained in your credit report is primarily provided to the credit bureaus by the financial institutions that you have credit relationships with. For example, credit card, auto loans, personal loans, and home loans are the most common.

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