Estimated reading time: 3.5 minutes
Credit education can be confusing, especially if you’re not sure where to start. But by getting to know what affects your credit score and what it means, you can take control of your financial future!
Your credit score is a three-digit number that represents your creditworthiness, also known as the level of financial risk associated with lending money to you and the likelihood that you’ll pay back your debt on time. Your score typically ranges from 300 to 850. The higher the number, the more creditworthy a borrower appears to lenders, which can help you secure a better interest rate and increase your chances for loan approval.
There are 3 major credit bureaus that collect your credit information: Experian, Equifax, and TransUnion. Each compiles its own credit report based on an algorithm, which may lead to different scores.
Each credit bureau leverages your credit mix differently to assign you a score. Some lenders may rely on different versions of your scores, which is why it’s important to keep an eye on all three from the credit bureaus.
There are 5 determining factors for your credit score based on your credit report data. As each of the three reporting credit bureaus have their own scoring models, each uses a different formula.
In general, your credit score will be based on:
You have the right to access your credit score and know what information is on your credit report, according to the Fair Credit Reporting Act.
By federal law, each of the credit bureaus are required to give you a free credit report every 12 months. Third-party sites like Credit Karma usually only show your VantageScore, but most lenders don’t even use this scoring model to issue loans. Instead, it’s recommended that consumers use annualcreditreport.com. If you’re interested in monitoring your credit throughout the year, the Consumer Finance Bureau recommends requesting one report every four months, allowing you to have an informed baseline about your data.
Each credit bureau has its own credit scoring methodology, leading to some variations in reporting data. All the scores reported by credit bureaus are created by FICO or VantageScore.
FICO was developed by the Fair Isaac Corporation for consumer use in 1989. The scores range from 300 to 850. 90% of lenders use this model. According to FICO, a “good” credit score is in the range between 670 and 739.
The VantageScore model was developed in 2006 by Equifax, TransUnion, and Experian as an alternative scoring method. While it can take up to six months of credit activity to generate a FICO score, your VantageScore is created as soon as your first credit is reported to the credit bureaus. A “good” VantageScore falls between 661 and 780.
When you apply for financing, like a mortgage, your lender will look over your credit score and history with a fine-tooth comb. Before you apply, be sure you’re making payments on time, keeping your lengthy credit history, and resist hitting your credit limit.
Maintaining your credit health ensures you’re putting yourself in an excellent position to take out a loan! Ready to connect with a Licensed Loan Originator to personally help you with your home financing goals? Contact us!
Homestead Funding offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.
“This website uses cookies to ensure the best user experience. By using our website you consent to all cookies in accordance with our Cookie policy.
Read More
.jpg)
