If you’re hoping to buy a house soon, one little number you’ll want to bring up to snuff is your credit score. Your credit score is a numerical summary of your credit report, a detailed document outlining how well you’ve paid off past debts – to credit cards, college loans, and any place you owe money.
Lenders check your score as a way to gauge whether to give you more credit in the form of a home loan. If your credit score is high, you’re considered creditworthy, which bodes well for your chances of getting a good mortgage. If your credit score is low, though, lenders might worry whether you’ll default on your home loan, and deny you a mortgage.
In other words: A good credit score is key to the home-buying process.
Who Calculates Your Credit Score?
Credit scores are calculated by three credit bureaus: Experian, Equifax, and TransUnion. Each of these credit bureaus comes up with a credit score in slightly different ways. For instance, Experian includes your rent payments in your credit report and credit score; TransUnion factors in your employment history. But rest assured all three of these bureaus’ credit scores should be roughly the same.
How is Your Credit Score Calculated?
The main variables that go in your credit report that make up your credit score are the following:
- Credit payment history (35%): This is whether you pay your credit cards on time.
- Debt-to-credit utilization (30%): This is how much debt you’ve accumulated on your credit accounts, divided by the credit limit on these accounts. Debt-to-credit utilization ratios above 30% work against you.
- Length of credit history (15%): Longer credit history balances are more favorable than shorter ones; ideally you need at least six month to establish credit and have a credit score tallied.
- Credit mix (10%): Your credit score goes up if you have different types of credit card accounts.
- New credit accounts (10%): Opening new credit accounts can increase your debt-to-credit utilization, although new credit lines may also work against you. How? Each time you open a new credit line, the average length of your credit history decreases, hurting your credit score. So be sure to weigh the pros and cons of opening new credit accounts.
How to get a Free Credit Score Check?
Have no clue what your credit score is? You can get your free credit score online at CreditKarma.com. You also check with your credit card company, since some offer a free credit check, too.
To dive into more details on what determines your credit score, as well as any problems dragging your credit score down, you’ll need to get your full credit report. You can get a free credit report once a year at AnnualCreditReport.com.
What is a Good Credit Score?
A credit score can range from 300 to 850; 850 is a perfect credit score. Wondering if your credit score is up to snuff? Here are the general credit score ranges.
- Perfect score: 850
- Excellent score: 760 – 849
- Good score: 700 – 759
- Fair score: 650 – 699
- Low score: 650 and below
Wondering where most people stand with their credit scores? The average credit score hovers around 695. Only about half of consumers have a credit score that falls in the optimal 700+ range.
