Much has been said about financial health. But, how can you determine the quality of your financial health?
One way is your credit score. A credit score is a three-digit number that indicates how creditworthy you are. Ranging from 300 to 850, this number lets lenders know if you are a solid or risky borrower. The higher the credit score, the better lending opportunities you have. Your credit score influences a lot from getting a credit card and an auto loan to getting a home loan – and even impacts the interest rate you quality for, which has an impact on your monthly payment.
There are five ranges of credit scores: Excellent (750-850), Good (700-749), Fair (650-699), Poor (550-649), and Very Poor (300-549). According to Experian – a consumer and business credit reporting service – 62 percent of Americans have a Fair credit score or better with 691 being the national average score.
So, how is the credit score determined?
Five important factors impact your credit score, but each factor has a different importance.
35% Payment History. The most important factor in determining your credit score is your payment history – paying your accounts on time. Late payments could lead to a lower score.
30% Amount Owed. Next, the credit score takes into account the amount you owe on your accounts – lowering your debt could lead to a better credit score.
15% Length of History. Creating a strong credit history is important – the longer you demonstrate responsible credit history increases the likelihood that your credit score is higher.
10% New Credit. Be careful in opening multiple lines of credit in a short period of time. This could lead to a lower credit score.
10% Credit Diversity. Diversifying types of credit from a car loan to credit cards illustrates that you can manage different types of credit and it may help your credit score.
Interested in understanding your credit report further? Just contact McCaffrey Home Mortgage at (559) 256-7050 and our loan specialists will be happy to help you determine your credit health.
