Credit Scores

A credit score is a single number that helps lenders and others decide how likely you are to repay your debts. One kind of credit score is a FICO score (FICO stands for Fair Isaac Corporation Inc., the company that developed a common scoring method). FICO scores range from 400 to 900 points.

When you apply for a mortgage, your credit score is evaluated. Your credit score may also be used to determine the mortgage interest rate.

Your credit score is based on several types of information contained in your credit report:

• Your payment history.
  Late payments will decrease your credit score.

• The amount of debt you owe.
  If your credit cards are at their limits, this can lower your credit score - even if the amount you owe isn't large.

• How long you've used credit.
  Your credit history is important. If you show a pattern of managing your credit wisely, keeping credit card balances low, and paying your bills on time, your credit score will be positively affected.

• How often you apply for new credit and take on new debt.
  If you've applied for several credit cards at the same time, your credit score can go down.

• The types of credit you currently use.
  This includes credit cards, retail accounts, installment loans, finance company accounts, and mortgages.

Your credit score is only one factor in the credit decision. Mortgage lenders also look at your credit report, employment history, income, debt-to-income ratio, and the value of the home you want to buy.

What the Numbers Mean

FICO does not make specific statistics available to the public regarding credit scores. However, they do provide some snapshot numbers that can help you understand how to interpret your credit score:

• Credit scores ranging from 770 to 850 are considered very good, and the best credit rates are usually available to borrowers within this
• Credit scores above 700 are considered good, according to FICO, and most borrowers' credit scores are within this range. The median credit score is about 725.
• When credit scores are below the mid-600s borrowers may experience higher interest rates when looking for a loan.

It is important to remember that credit scores are like snapshots of your credit – they show a "picture" of your credit based on current information. By using credit wisely, you can improve your score over time.