Your credit score is a number between 300 and 850, which tells lenders your creditworthiness. In other words, it explains how much money you are capable of repaying, and whether you will make your payments on time. If you intend to apply for any type of loan, you should know what affects your credit score and how you can use it to get the best possible terms.

A Basic Guide to Credit Scores

How Your Score Is Calculated

Payment history is the single most important factor that accounts for over one-third of your score’s calculation. This calculates whether you make your payments on time for credit cards, student loans, car loans, mortgages, and any other debt. If you are late on multiple payments, such as your utility bills, and your provider turns the debt over to a third-party collections agency, then this will affect your score as well.

The amount of debt you have is another important factor. Your credit utilization ratio calculates how much of your available credit you actually use; it’s best to keep this ratio under 30 percent. Your credit history is also important; this will look at the age of your oldest credit account and the average age of all your accounts combined. A solid history is beneficial, so keep your oldest credit account, if possible. Other smaller factors include the types of credit you have, any new credit you have, and how many recent credit inquiries you have had.

How to Manage Your Score

A score of over 720 will be considered good by your lender. When you have a higher score, they are more likely to qualify you for the loan you want and provide a lower interest rate. This is because they know they are assuming less risk by loaning to you. Credit takes time to build, so work on managing your score long before you intend to borrow money.

Always make your credit payments on time and in full. Set a reminder or automatic payments, so you never miss a payment. Use less than 30 percent of your available credit, and keep your older credit accounts open to show a solid history.

Are you looking for a home loan? Fairway Independent Mortgage Corp. - The Sharon Thompson Team provides affordable and approachable home loans in Foley, AL. Sharon and her team will find the loan to suit your needs, with competitive mortgage rates, convenient online applications, and in-house underwriting. Learn more on their website and call (251) 298-5304 to schedule an appointment.