If you are thinking about buying a or re-financing now, or anytime in the future, one of the main factors determining your ability to qualify for a loan is your credit score. Understanding what credit scores mean, how they are calculated, and how to improve your score can make the difference in your ability to qualify for a loan and get the best possible terms and interest rates.
Credit scores range from 300-850. Here is how those scores are broken down:
780 and Above: Outstanding
62o and Below: Poor
Typically, the higher your credit score, the better loan terms you will be offered. People with scores below 620 will generally not be able to qualify for a loan.
Credit scores are determined by a number of factors including:
- Amounts owed
- Payment history
- Types of credit in use
- New Credit
- Length of Credit History
There are three major credit reporting agencies: Equifax, Experian, and TransUnion. These agencies may all have slightly different information, and they each use a different method to calculate credit scores, so your score will be slightly different from each one. Most lenders will pull credit reports from all three agencies when processing a loan. It is important that everyone checks their credit report at least once a year to ensure that the information is accurate and up-to-date. You can pull a free copy of your credit report once a year through the website http://www.annualcreditreport.com/. This website also offers credit scores, for a fee.
If your credit score has seen better days, there are things you can start doing right away to improve your score:
- Pay all your bills on time
- Work to get credit card balances below 25% of their limits
- Open new accounts only if absolutely necessary
- Lengthen your credit history
- Seek credit counseling through the National Foundation for Credit Counseling http://www.nfcc.org/
- Opt-out to stop receiving new credit card offers through http://www.optoutprescreen.com/ or call 1-888-567-8688
In Boulder County, we have a fantastic resource for anyone who is thinking about buying a home and has questions about credit or related items. The Boulder County Housing Counseling Program offers free housing counseling and classes http://www.bouldercounty.org/hhs/housingcounseling.htm. These services are available to residents of Boulder, Broomfield, and western Weld Counties.
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