What is a Credit Score?
When it comes to buying a home, the better your credit score, the more likely you are to lock in a good interest rate on a mortgage. But what is a credit score exactly? A credit score is a number lenders use to help them decide how likely it is that they will be repaid on time if they give a person a loan or credit card. Your personal score is built on your credit history. Credit scores range between 200 and 850, with scores above 620 considered desirable for obtaining a mortgage.
The following factors affect your score:
Your payment history. Do you have a lot of late payments or do you pay your credit card bills on time? Bankruptcy filing, liens, and collection activity also affect your history.
Total debt owed. If you owe a great deal of money on numerous accounts, it can indicate that you are overextended. However, spreading debt among several accounts can help you avoid approaching the maximum on any individual credit line.
The length of your credit history. In general, the longer an account has been open, the better.
How much new credit you have. The age of your accounts matters. New credit, whether in the form of installment plans or new credit cards, is considered riskier, even if you pay down the debt promptly.
Types of credit. Generally, it’s desirable to have more than one type of credit—such as installment loans, credit cards, auto loans, and a mortgage.
Monitoring your credit on a regular basis can help you keep a close eye on how these factors affect your score and what you may be able to do to improve your score. The best way to improve your score is to pay bills on time and in full. A decent credit score is essential for your financial well-being because the higher it is, the less of a credit risk you are.
Looking for more information on obtaining a mortgage or buying a home in the Greater St. Louis area? We are here to help! We would be happy to answer any questions you may have and can even connect you with a local, trusted lender if needed. Contact us today or fill out the form below.