How Important is Your Credit Score?

Digital Online Credit Score Finance Rating Record Concept

One of the biggest factors you need to take into account when trying to get a loan or refinance is your credit score. The Fair Isaac Corporation (FICO) created algorithms to calculate credit scores and breaks it down to a 3 digit number. Credit scores can range for 300-850, with 300 being the absolute worst. FICO gives their algorithm to the 3 credit bureaus-Equifax, Experian, & TransUnion. When your credit is run you end up with 3 sets of numbers-one from each bureau. These can range in difference up to 50 points. So how do they choose what your credit score is? They take the median number as your true credit score.

Now you may be asking yourself, how much can a credit score really affect me? Your credit score affects everything from the rate you get for a mortgage or auto loan, to the ability to rent an apartment, or get a credit card.

The algorithm created by FICO is measuring your creditworthiness. What does your payment history look like? Do you pay your bills on time? Do you pay the full amount on your credit cards each month or do you just pay the minimum? How long have you had lines of credit open? Your score is determined by taking into account 5 components:

·        35%- Depends on your payment history (delinquencies, late payments?)

·        30%- Depends on the amount you owe and your debt utilization ratio (How much you owe compared to your overall credit limit)

·        15%- Depends on the age of your accounts

·        10%-Depends on new credit, what recent inquiries show up when you run your credit? Were new accounts opened?

·        10%- Depends on the different types of credit that you use. Do you have credit card debt? Student loan debt?All of these parts are taken into account when calculating your credit score. The goal is to have a credit score on the higher end, 690 and up. You are considered to have good credit at this point and you will see the benefits when it comes to getting a lower rate on your mortgage or auto loan.

It is important to know what your credit score is, or the rough range that you lie in, at all times. There are a lot of sites where you can pay to run your credit. Under federal law you are entitled to a free annual credit report. You can get this by going to www.annualcreditreport.com .

Complete Secure 1003 Application

With Stonecastle, the loan approval process has never been easier. We offer a secure and convenient application for you to fill out as well as a secure link to upload your required documentation at your leisure.

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Michael & Stephanie Olson

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