What Creates This Mysterious Score?
What you call your credit score is technically called your “FICO score.” It was created as a way to measure how much of a credit risk you are by a company called Fair Isaac (now called FICO). Scores range from 300 to 850. Mortgages generally require at least a 620 (FHA says 640 now) credit score for buying a home. Be sure to see our Credit Improvement Tips.
Kind of like Coca-Cola, the formula used to generate your score is a secret, but here are several things that we do know:
35% of your score is based on your Payment History. Making debt payments on time is the single best thing you can do.
30% of your score is from your Outstanding Balances. Keeping your credit account balances under 50% or, even better, less than 30%, of the available credit on that account. For example, keep less than $3000 on a credit card with a $10,000 limit.
15% of your score is caused by your Length of Credit History. Keep accounts you’ve had for a long time, even if they have a zero balance.
10% of your score comes from the Types of Credit You Use. A variety of credit types (car loan, credit card, store account, etc.) is good for your score.
10% of your score depends on Recent Credit Inquiries. Getting your credit score “pulled” very often drops your score. You definitely want to limit inquiries to the bare minimum.
Buying a new car will make it much much harder to qualify for a home. Buy the house first, then the car!
24% of credit reports contain errors serious enough to deny you a loan. Check your credit report yearly and correct errors.
Thinking of buying a home in the Portland, Oregon area? Checkout our First Time Home Buying Classes!How is a Credit Score Calculated?,
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