Credit Score and Home Loans – Prattville, AL – Part 1

Credit Score and Home Loans – Prattville, AL – Part 1

 

Once you have ordered your own credit report and looked it over to make sure the information on it is correct, you might be wondering what goes into calculating your credit score.  After all, your credit score is going to affect what type of home loan you can get and even the interest rate you can get.   Credit score and home loans are tied together tightly.  So having a good credit score is really important.  And it’s important whether you’re buying a home for sale in Prattville, AL or anywhere else in the River Region.

 

FICO credit score percentage chartSo what factors go into calculating your credit score?  According to FICO, the Fair Isaac Corporation, your credit score is made up of five categories.  Each one of these categories carries a different weight, or different level of importance, in calculating your credit score. Even though lenders look at more than just your credit score when deciding whether to give you a home loan, such as your income and how long you’ve had your job, credit scores are a big part of the home loans process.

 

The first category in calculating your FICO credit score is your Payment History. This category is made up of all your credit accounts as well as public information such as bankruptcies and judgements.  So if you have other mortgages, credit cards, store credit cards, auto loans, student loans, or any other credit accounts, they will be included here.  If you pay these accounts on time, then the credit score for this category may be raised.  But if you have accounts in collections, accounts you pay late, or accounts you have defaulted on, then the calculation takes this into effect and lowers the credit score for this category.  The Payment History category accounts for 35% of your credit score.

 

Next is the Amounts Owed category.  This category looks at the amounts you owe on your accounts, the number of accounts that you owe balances on, and how much of your available credit you are using.  For instance, if you have a credit card that has a $5,000 credit limit, and you owe $3,000 on it, then the calculation thinks that you are using too much of your available credit for that credit card.  The general rule of thumb is that if you are using more than 50% of your available credit, then the calculation may lower the credit score for this category.  The Amounts Owed category accounts for 30% of your credit score.

 

This gives you a start on how your credit score is calculated.  In the next post, we’ll look at the other categories used to calculate your FICO credit score and look more closely at how credit score and home loans are tied together for buying a home for sale in Prattville, AL.  There is more helpful information on homes for sale on the Buyer’s Choice Realty website.

 

Credit Score and Home Loans – Prattville, AL – Part 1

 

 

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