Have you ever wondered what makes up your credit score? What makes it good or bad? A good source to learn more about credit scoring is myFICO. Run by Fair Isaac Corporation, they are one of the three leading repositories of credit data in the United States.
There are essentially five key factors that determine your credit score, and by default, whether your credit is rated good or bad. The chart below shows those 5 factors.
All five factors are not weighted equally, however. Your payment history (do you pay on time?) and how much debt you’ve taken on (also called your “utilization ratio”) make up 65% of your credit score. While given less weight – 15% - how long you’ve had credit in your name can also have an impact.
So how do you know if your credit good or bad? Credit scores range from 350 to 850. Generally speaking, a credit score over 680 is considered good. However, only a lender, bank, or other creditor can tell you for sure how your credit fares.
Having good credit is crucial for buying a home because it impacts what interest rate your mortgage will be or even if you can qualify for a home purchase at all. The key to good credit is paying your bills on time, not overextending the credit you have and establishing a long history with credit.
If you find yourself in a bind, housing counselors offer free-to-low-cost help to improving your credit situation and help you get better-positioned to purchase a home. You can find a qualified counselor through the U.S. Department of Housing and Urban Development.
Good credit is the door to your future – treat it like anything of value!
