Have you ever wondered about how credit scores are calculated and what it all means? In this blog post I’m sharing the top three questions people ask about credit scores. Here they are:
- How are credit scores calculated?
- What does it mean to have a high credit score?
- What are the key components that make up your credit score?
How are credit scores calculated?
Credit scores are calculated using several pieces of data that come from your credit report.
What does it mean to have a high credit score?
A high credit score allows you to have higher chances of receiving good interest rates when applying for loans. A high credit score also allows you to obtain more lending options. Discipline is important when it comes to building a high credit score, but it also takes time.
What are the key components that make up your credit score?
In this list you will see each of the key components with a comment on what are the things that may help you build a high credit score.
- Payment History
- Avoid late payments.
- Money Owed or Total Debt on credit accounts.
- Make an effort to pay your credit card in full each month.
- Age of our Credit
- The longer you’ve had credit accounts the more information lenders will have about you and your behavior when it comes to payments. This is mainly because as you take credit you build experience with the credit system. Start to build experience with credit accounts since lenders will use the information about your behavior and make assessments of risk accordingly.
- Mix of Credit
- Your credit score will vary depending on your credit cards, retail accounts, installment loans, mortgage loans and other accounts. Paying off multiple accounts of credit is a good idea as that will help show you have a solid history of payoff debt.
- New Credit Accounts
- Opening new accounts in a short period of time could signal lenders that you are a high-risk borrower.
Contact me to setup an appointment and I will help you go through your credit report. I would love to help you understand how to become a successful home buyer.
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