How Is Your Credit Score Calculated?

Your credit score is an important consideration when you’re applying for a home loan. Your lender will use your credit score to determine how much money you can borrow and what interest rate you qualify for. But what exactly goes into calculating your credit score? Let’s take a closer look at the five biggest things that factor into your score.

Payment history

Your payment history is the most important thing that factors into your credit score. It accounts for 35 percent of your total score and shows lenders how likely they are to get their money back. There are several aspects of your payment history that are taken into consideration:

  • Do you pay on time for each of your accounts?
  • If you were late with a payment, how late was it? The longer you were late, the worse it is for your score.
  • How long ago were you late on a payment? Newer late payments affect your score more than late payments that happened in the past.
  • Were any accounts sent to collections?
  • Do you have any judgments against you like a foreclosure or bankruptcy?

Amounts owed 

The amount you owe on each of your accounts is the second-most important factor and accounts for 30 percent of your score. Things that are evaluated include:

  • How much available credit do you have? Not owing much on your accounts in relation to how much you can borrow figures positively.
  • How much do you owe on each type of account, such as car loans, mortgages, or credit cards? Having a mix of different kinds of credit is a good thing.

Length of credit history 

The length of your credit history accounts for 15 percent of your score. This part of your score evaluates how old your oldest account is as well as the average age of all your accounts. It’s a good idea to leave credit cards open even if you aren’t actively using them. The longer your credit history, the better — as long as you don’t also have a long history of late or missed payments, too.

Types of credit

The types of credit you have accounts for 10 percent of your credit score. This looks at the mix of different kinds of credit you have, like installment loans and credit cards. It also looks at how many accounts you have open. Having a mix of types of credit is good, although don’t open new lines of credit just to make sure you have one in each category.

New credit

Finally, how many lines of new credit you have accounts for 10 percent of your score as well. This includes new accounts you’ve recently applied for in addition to how old your newest account is. Your score can go down when you apply for new credit, especially if you’ve opened several new accounts. This is because it might be assumed that you’re having financial troubles and that’s why you need to take on new debt.

Contact the Clark & Gilman Team today!

If you’re ready to buy a North County San Diego home, then it’s important to have a team of experts on your side. Contact the Cristine Clark & Jamie Gilman Team at 760-758-1211 or [email protected]. We’d love to help you find the North County home of your dreams!

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