What is a credit score?

What is a credit score?

When you are applying for a mortgage loan, one of the many things lenders look at and consider is your credit score.  Your credit score is a measure of your financial health, and shows lenders their level of risk if they lend you money.

So, what is a credit score? It is a number between 300 and 900. If above 700, it proves you manage your credit well. In other words, a lender should not have any problems letting you borrow money. A credit score is determined by a complex formula using a number of factors. Your credit score is built and tracked based on information sent to credit bureaus – agencies that report on one’s credit – by companies that lend you money or issue you credit cards.

Given all this, what are the factors that influence your credit score?

One important factor that is used to calculate your credit score is payment history. Late or missed payments, overdue accounts, bankruptcies, and any written off debts will all lower your credit score. The other factor is related to collection accounts. That is, if you have accounts that were turned over to a collection agency, your credit score will also lose points.  Pay attention to current debt limits. How much debt you have as a percentage of your available credit will also affect your credit score. Ideally, you will not use more than 35% of your available credit. Credit history is also really important: the longer you’ve had your accounts open, the better it is. Finally, the type of credit you have will also determine your score. Having a mix of credit is best, such as a credit card, an auto loan and a line of credit.

Why is this important when it comes to getting a mortgage loan? Your credit score affects which lender you can get your mortgage from, and what your interest rate on that mortgage will be.  The lower your score, the greater risk you pose to the lender.

The Costa Group cannot repair your credit score, but we can definitely advise you on how to improve it, should it be low.