No matter where you are in your homeownership journey, your credit score plays a big role in buying a home. We’re sharing everything you need to know about what your credit score is and how it directly impacts your mortgage.
What is a FICO® credit score?
You will most likely hear the acronym ‘FICO®’ when referring to credit. If you’re not sure what FICO is, it is the Fair Isaac Corporation and they’ve developed credit risk score to help lenders make accurate, reliable and fast credit risk decisions. . Learn more by watching the video below.
How is your FICO score determined?
As stated above, your credit score is also commonly called a FICO® score. It is an analysis of all your credit files that together represent how credit-worthy you are. Your score is added up based on the following:
- Payment history (do you pay your bills on time?) – 35% of your score
- How much you owe (on each line of credit, and in total) – 30% of your score
- Length of credit history – 15% of your score
- New credit and inquiries (how often you apply for new credit) – 10% of your score
- Types of lines of credit you have (credit cards, car loans, etc.) – 10% of your score
How do lenders use your credit score?
Everyone has a credit score, but what exactly links it to your home loan? Your credit score is a component of different factors that lenders use to determine the interest rate and amount of your home loan. The better your score, the less risk you are to the lender. However, your credit score isn’t the only number that impacts your interest rate. Learn more about the different factors that go into how mortgage rates are determined here.
Learn more about your score
Take the next step with PrimeLending
Our team is here to help educate our borrowers about all aspects of the loan process. If you have questions or are ready to start your homebuying journey, connect with a loan expert in your area today.