How is it determined and what can you do to improve your credit score.
Experts have agreed that a good credit score is a score of 720 or above. A great credit rating would be a score of 760 or above. If your score is in the 680 range, it is still considered good and if you apply for a loan you will most likely get the loan, just not at the most attractive of interest rates.
Your credit score is made up of a 3 digit number that is calculated by a mathematical formula from information in your credit report. The number is essentially a prediction of how likely or unlikely you are to pay your bills. The higher your rating the easier it will be to get approved for a loan and at a favorable interest rate.
Payment history is a very important factor in your credit score. Most recent activity is more important that previous years, so its never too late to change your ways if you frequently make late payments.
The second most important consideration is how much money you owe in comparison to how much credit is available to you. This is known as your Debt to Credit ratio. Someone who has managed their money and kept their debt low in relation to how much money is available to them will be considered less risky then someone who has maxed out on their available credit. A good ratio would be to keep your debt at 30% of your total available credit.
Other factors include:
- Length of Credit History - Longer you have credit, the better
- Types of Credit Used - A good mix of credit (Mortgage, credit cards, car loan, line of credit) would be considered better than just having a few credit cards. Shows you can manage variety of credit
- Frequency of Credit Applications: Applying for credit every week will have a negative impact on your score, lenders will think you are in financial distress
These are a few things to know about credit scores. For more detailed info contact me for info on local mortgage brokers who will work with you to get your credit score to a point that you can get approved for a mortgage.