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Your credit score reflects your creditworthiness. In other words, it lets potential lenders know how likely you are to pay them back. Even if you’re not planning on applying for a mortgage loan anytime soon, though, it’s wise to monitor this score because it can affect eligibility for everything from apartments to professional positions. If your score isn’t as high as you’d like and you’re wondering why—or you want to improve it—the following information should help. 

What Determines My Credit Score?

Each credit bureau has different reporting standards. Generally, payment history will have the greatest impact on your score. A consumer’s history of making on-time payments for both revolving accounts and installment loans make up about 35% of his or her total score. 

The amount of debt owed to total credit available, or what lenders call credit utilization, will also have a significant impact on your score. It’s wise to keep this figure below 10%. That means, if you have access to $20,000 in revolving credit, you shouldn’t carry a balance of more than $2,000 before applying for financing. 

mortgage loanFactors that have less of an impact on the score—but still matter if you want to secure the lowest interest rates and best financing terms possible—include the kinds of accounts that are opened and the number of times you’ve applied for financing over the past couple of years. Lenders want to see that borrowers can manage several different kinds of credit. At the same time, though, applying for a lot of credit over a relatively short period of time—or having multiple “hard inquiries” on your report—will raise a red flag. 

How Can I Improve My Credit Score?

If you’re planning on taking out a mortgage loan or financing a major purchase in the near future, it’s wise to start getting your credit in shape now. As you’ve probably already guessed based on the factors mentioned above, the single most effective way to boost your score is by making all payments on time every month. 

Reducing credit utilization will also improve your score considerably. You can do this by both paying off existing debts and increasing total available credit. Check if the lender will perform a hard credit inquiry before requesting additional credit, though, as such pulls will work against you. Thankfully, if you’ve been a reliable borrower for years, some lenders will increase your total available credit after merely reviewing your updated annual income. 

 

If you want to apply for a mortgage loan or car note, but you’re concerned about your credit score, the friendly team at Magnolia Bank can help. After evaluating your situation, they’ll let you know if you’re prequalified. And, if it turns out you’re not, they’ll provide guidance for getting back on track financially. From their branches in Elizabethtown, Hodgenville, and Magnolia, KY, this banking institution provides unparalleled service to all their members, not to mention competitive rates for various financial products. To talk to someone on their team about your financial needs, from mortgage loans to savings accounts, reach out online or call (270) 358-3183.

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