The credit score—something that can make even the most financially responsible adult quake in fear. This number can unravel important financial milestones, like buying a house or applying for a new credit card.
These three little digits may seem like a mysterious, fickle way of determining whether you get a house or not. But we’ll break down the elements of credit and credit scores so you can tackle this without fear!
What makes a credit score?
It’s a 3-digit number between 300 and 850 that essentially determines the likeliness that you’ll pay back the loan. In addition to your history of borrowing and repaying money, the score will be calculated by the FICO model (which you can check out here), look at your debt-to-income ratio, and any public records that may be relevant (such as bankruptcy filings).
Late payments, missed payments, lots of debt and bankruptcy can lower your score and diminish the chances of either getting a loan, or getting a good rate on a loan.
There are three main credit bureaus—Experian, Equifax and TransUnion—that calculate and share credit scores with you and institutions that are looking to lend you money.
How do lenders use your credit score to lend you money?
A credit score of over 700 is usually considered good and the lenders are more likely to loan you money. However, each lender may have its own rubric on how “good” a credit score is and how likely they’ll offer you a loan depending on their clients, recent financial events, and other factors.
Lenders will take a look at all of this, plus whatever you put on your loan application. Remember—the higher your credit score, the lower risk you seem to creditors.
It’s also important to know that each credit bureau or institution that runs your score will use a slightly different scale or variation of the FICO score to calculate your number. If you see slightly different numbers, don’t worry! Of course, if one is wildly different from the others, that might be cause for concern and you should contact the institution.
What can I do to boost my credit score?
If you’re in the market to buy a property, a good credit score should be at the top of your mind. (If you are not looking to buy yet and just want to increase your score, that’s excellent!)
Here are some great ways to boost your score:
- First of all, pay everything on time! This is probably the easiest and quickest way to increase your score. Pay the minimum on time every month. A single late payment can hurt your score. If you do miss a payment, reach out to your creditors as soon as possible. Most are willing to work with you.
- Pay twice a month. A sneaky way to build up your score is pay half your balance about two weeks before the due date, then pay the rest the day before your due date. It’ll help keep your balance down and show creditors you can reliably make payments.
- Have a credit mix. Most people already have this without even knowing! Having a diverse range of credit—such as credit cards, student loan payments or a car loan—is important to creditors.
- However, don’t go opening or closing cards for credit’s sake. Opening three new credit cards or shutting down a few right before you apply for a mortgage can be suspicious to lenders.
How can AMKO use my credit score to get me in the house of my dreams?
We’re glad you asked! Our mission is simple: to find you the best mortgage. We can work with your credit score to find the best rate and get you into your dream home. AMKO is not tied to any specific lender or bank, so we shop around for you.
And we completely understand that mortgage and credit score talk is overwhelming. We’re here to help!
