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4 things you need to know about credit scores

Posted: 2:55 PM, Feb 19, 2018
Updated: 2018-12-12 16:53:03Z

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).

 

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What makes up a credit score?

Your credit score has several factors playing into it. According to Brady Porche of  creditcards.com , the foremost determining factors are payment history, credit use, length of credit history and credit mix.

Regarding payment history, paying your bills on time, every time, will do more for your credit score than anything else. A late payment on a mortgage or a car loan will hit your credit hard and drop your score a number of points.

Credit utilization refers to keeping your balances low, typically at least below the 50 percent level of whatever your credit limit is on that account.

Your length of credit history is important. Don't rush to close old accounts, even if you're not using them. The longer you have accounts open, even when dormant, helps build your credit score.

The number of inquiries, or the number of times your credit is pulled or checked, can have a negative impact on your score. Have it pulled only when necessary.

Regarding credit mix, your score will be determined by what types of credit you carry. For example, a credit report full of credit cards with balances might do more damage to your score than a report with the same amount of accounts, but some of them being installment loans. Aim for a mix of the two.

How do I check my credit score?

Every year you are entitled to a free credit report. Do this by annually going to  annualcreditreport.com  and reviewing accounts and any information that may be incorrect. Knowing your situation and resolving any potential misinformation early will help prevent headaches later when applying for credit.

What do you need a credit score for?

Most of us will need to have a good to excellent credit score for big-ticket items, like a house or a car. According to LaToya Irby of  thebalance.com , having a good or excellent credit score typically means lower rates and more helpful lending scenarios.

Salin Bank , for example, has many  advantageous products  for borrowers with excellent credit. Mortgages, auto loans and home equity lines of credit are just three of their loan products where having a great credit score works to your benefit by having lower rates and better terms.

But what if you don't have excellent credit and still need a loan? Salin Bank can still help you. In fact, there may be special grants or help available to you, should your situation qualify.

Wondering what to do next?  Contact  Salin Bank today to discuss your credit qualification questions and get the process started for your next big purchase.

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