Purchasing big-ticket items, like a house, can be stressful. While paying cash for such items would be ideal, for many of us that's just not in the cards. For example, last year, according to Business Insider, 28.8 percent of all home purchases were cash purchases. For the other 71.2 percent of us, that means needing to qualify for a mortgage, which, of course, requires a good credit score.
But what does it mean to have good credit? What is a credit score? Here are four things to know about credit scores to help you along your way.
What is a credit score?
Simply put, your credit score is a three-digit number that relates to how likely you are to repay debt. If you need a loan, this is the number lenders will use to decide whether they will approve the loan. There are three main credit bureaus, Equifax, TransUnion and Experian, each with different algorithms and scales, that figure your credit scores. Typically, for large loan amounts, lenders will qualify you off your middle score pulled from the three bureaus.
According to creditkarma.com, your score will vary between the three because they typically don't cross-share much, or any, of your data. In fact, most creditors do not report to all three bureaus, usually just one or two. This is why you shouldn't be alarmed if one account, a credit card, for example, shows up being reported from one bureau and not another.
Most lenders will qualify you based on your FICO score. FICO is a brand name and stands for Fair Isaac Corporation. This is the score you receive when credit is pulled from the three major credit bureaus.
The credit score scale ranges from 300-850, with most borrowers falling in the 600-750 range. According to Credit Sesame, while the three bureaus have slightly varying scale degrees, you would be safe to assume these are the categories and score rankings lenders will consider: excellent (750 to 850); good (700-749); fair (650-699); poor (50-649); and bad (550 and below).