Mortgage Loan Blog

A credit score is the score associated with a person’s credit report. This score indicates how well a person has managed his or her credit in the past. Various methods to score a person’s credit report exist. However, the most commonly used score is the FICO score. FICO stands for Fair [...]

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A credit score is the score associated with a person’s credit report. This score indicates how well a person has managed his or her credit in the past. Various methods to score a person’s credit report exist. However, the most commonly used score is the FICO score. FICO stands for Fair Isaac Corporation.

With a FICO score, the higher the score, the better the score is. FICO scores range from 300 to 850. A good score is anything 700 or above. This score is for the ideal credit consumer. They make their payments in time, they do not own that much debt, and they have demonstrated responsible use of credit for a long time.

A score below 600 will not rule you out but will probably get you higher interest rates. You can find out what your credit score is free; you are entitled to a free credit report once a year.

The following factors contribute to your credit score:

* payment history
* how much you owe
* how long you’ve had a credit history
* whether you’ve applied for new credit recently
* types of credit used

Why would you want a good credit score?

Companies use your credit score to see if you would make a good customer. Credit reports are used:

* for determining if you are a good credit card customer
* for determining how good a car insurance customer one might be
* for determining how good a mortgage customer one might be

Besides determining whether one qualifies for credit or not, the credit score also groups people into how desirable they are as a customer. Companies are willing to offer lower interest rates to people with higher credit scores because they are more desirable as customers. Conversely, the worst you credit score is, the less attractive the offers look like to you.

Besides situations dealing with credit, credit scores are also often used

* as part of a hiring decision
* as part of an apartment rental application

This may seem like an invasion of privacy but many companies are doing it.

What lowers a credit score?

* The biggest thing affecting your credit score is probably going to be missed or late payments. A lender hates seeing this on a credit report. Who wants to lend money to somebody who has shown themselves to be a bad borrower?
* Having balances too close to the maximum amount allowed on credit cards also lower a credit score.
* Applying for too many credit cards in a short amount of time lowers a credit score.

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Tags: Credit, Credit Score