![\"A](\"https:\/\/www.livabl.com\/articles\/wp-content\/uploads\/2023\/01\/creditscore1.jpg\")
<\/a>Understanding your credit score will unlock the knowledge you need to apply for a mortgage (Photo credit: Andrey Popov<\/a>)<\/p><\/div>\n Livabl<\/em> spoke with Anthony Gallop, a residential lending specialist at FrostBank<\/a> in San Antonio, Texas, for more details.<\/p>\n \u201cA credit score is a number that predicts your credit behavior,\u201d Gallop said. \u201cIt helps lenders figure out how likely a borrower will be to repay a loan on time. Your credit score will determine your likelihood of securing a mortgage, car loan, credit card, or other products like lines of credit. They\u2019ll also be used to decide your credit limit and the interest rate you\u2019ll be given when it\u2019s time to pay back the loan.\u201d<\/p>\n Your credit score is generated by businesses using a mathematical formula known as a scoring model based on data from your credit report. But what\u2019s a scoring model?<\/p>\n \u201cCredit bureaus use stats from your credit history to create these scoring models,\u201d Gallop said. \u201cDifferent elements are assigned different levels of importance when figuring out your total score. For example, the amount of debt you\u2019re currently carrying, the number of credit cards you have, how much of your credit you\u2019re using, and the length of history you\u2019ve had with banks are all considered.\u201d<\/p>\n In short, if a customer is responsible with their credit, pays off the balance of their credit cards on time, and isn\u2019t carrying a large amount of debt, they\u2019ll have a higher credit score. However, various credit score models place different weights on different elements. That\u2019s why other credit bureaus may have slightly different scores for the same borrower.<\/p>\n Using credit responsibly will help your credit score (Photo credit: peopleimages.com<\/a>)<\/p><\/div>\n \u201cYou\u2019ve likely heard of FICO<\/a>,\u201d Gallop said. \u201cThat\u2019s because they because their reliability is well known.\u201d<\/p>\n FICO, formerly the Fair Issac Corporation, has been around since 1989. FICO has been revised multiple times to account for the changing factors that affect a person\u2019s credit score. Today, there are at least 16 versions of the FICO model, and they are used by 90% of the country\u2019s top lenders.<\/a><\/p>\n FICO 10 and FICO 10T<\/a>, collectively known as the FICO Score 10 Suite, are FICO’s latest credit scoring models (formerly the Fair Isaac Corporation). According to the company, FICO 10 and FICO 10T are designed to outperform all previous versions of FICO scores in helping lenders evaluate credit risk.<\/p>\n With the aid of trended data, FICO 10T offers a new perspective on credit scoring. It examines how consumers have handled their financial accounts over the past 24 months, considering whether they carried a balance from month to month or combined their debts during that time.<\/p>\n Here\u2019s the most significant difference between 10T and other credit scores: Traditional scores that don’t use trended data typically use the most recently reported month of data to drive specific components of the score, such as the most recently reported balance and credit limit on an account.<\/p>\n Based on your financial history, FICO credit scores are meant to help lenders, such as banks and credit card issuers, predict a borrower\u2019s risk potential. Specifically, FICO scores take five major factors into account:<\/a><\/p>\n \u2022 Payment history (35%) \u201cKeep in mind that a borrower doesn\u2019t have a single credit score,\u201d Gallop said. \u201cIt doesn\u2019t matter whether you’ve ever filed for bankruptcy, had your home foreclosed upon, or had a debt collector chase you down for payment; there\u2019s going to be more than one number. Each credit score is based on the data used to create it. That means each score may differ depending on the scoring model, the type of loan, the data source, and even the day the score was generated.\u201d<\/p>\n Another version of a borrower\u2019s credit score can come from VantageScore. According to Debt.org<\/a>, The VantageScore <\/a>model was introduced in 2006 when the three major credit reporting bureaus \u2014 Experian, Equifax, and TransUnion \u2013 decided to offer FICO some competition in the credit score business.<\/p>\n To calculate its score, the VantageScore model looks at data similar to FICO’s\u2014 paying on time, keeping credit card balances low, and avoiding new credit obligations, bank accounts, and other assets. VantageScore breaks it down this way:<\/p>\n \u2022 Payment history (40%) FICO and VantageScores\u2019 credit numbers range between 300 and 850. A good score at FICO begins at 670, whereas VantageScores\u2019 good rating starts at 661. <\/a>VantageScores\u2019 \u201cexcellent\u201d range is slightly broader, containing scores between 780 and 850. By comparison, a borrower must have a credit score of between 800 and 850 to qualify for the same rating with FICO.<\/p>\n For a conventional mortgage, you\u2019ll need a credit score of at least 620. But other types of loans are available with lower credit minimum credit scores if you qualify.<\/p>\n FHA Loan | Credit Score: 580<\/p>\n The Federal Housing Administration created FHA mortgages in the 1930s to make homeownership attainable, and they were the first type of mortgage loan available to borrowers. Due to its flexible down payment requirements and the fact that the FHA doesn’t base your interest rate on your credit score, FHA loans are more inclusive than other loan options.<\/p>\n VA Loan | Credit Score: 580<\/p>\n The Department of Veterans Affairs backs VA loans<\/a>. Veterans and active-duty military personnel can obtain affordable mortgages through VA loans.<\/p>\n Mortgage lenders offer VA loans at lower interest rates because the VA insures its loans against losses. Historically, VA mortgage rates have frequently been the lowest of all readily available mortgage loans. In addition, there is no down payment needed with VA loans.<\/p>\n There are plenty of things you can do to improve your credit score (Photo credit: wirojsid<\/a>)<\/p><\/div>\n Figuring out your credit score is no longer a mystery. Potential borrowers are constantly barraged with ads on television and podcasts for sites that let them check their credit scores for free.<\/p>\n Past concerns of damaging one\u2019s credit score by inquiring are no longer a problem. A personal search of a credit score is considered a \u201csoft pull<\/a>\u201d of data information. Soft pulls simply look for information, whereas a \u201chard pull\u201d is done whenever a credit application is made. Hard pulls can harm your credit score and will stay on your record for a few months, so a borrower needs to be strategic about how often they apply for credit. If they are in the market for a new home and require a mortgage, it\u2019s best not to apply for other credit products directly prior to or during the mortgage application process.<\/p>\n If borrowers are looking for free sites to check their credit scores, they can check out Credit Karma<\/a>, Credit Sesame<\/a>, and Credit.com.<\/a> In addition, many credit card companies will also offer free credit score updates to their users.<\/p>\n \u2022 Get that credit score number as quickly as possible. Borrowers need to know where they stand and how much improvement must be made before applying for a mortgage. Also: Contact the credit bureaus for a free copy of the credit report. Review it for accuracy and if there are any errors, report them back to the bureau immediately. An unnoticed mistake on a credit report can wreak havoc on a credit score.<\/p>\nWhat is a credit score?<\/h2>\n
<\/a>What\u2019s a credit bureau?<\/h2>\n
How credit scores break down<\/h2>\n
\n\u2022 Credit utilization (30%)
\n\u2022 Credit age (15%)
\n\u2022 Credit mix (10%)
\n\u2022 New credit (10%)<\/p>\nThe VantageScore model<\/h3>\n
\n\u2022 Length and type of credit (21%)
\n\u2022 Credit utilization (20%)
\n\u2022 Total balances (11%)
\n\u2022 Recent behavior (5%)
\n\u2022 Available credit (3%)<\/p>\nWhat\u2019s a good credit score?<\/h2>\n
<\/a>How to check your credit score<\/h2>\n
How to increase your credit score<\/h2>\n
Here are five tips to improve a credit score:<\/h3>\n