What is a Credit Score?

Definition of a Credit Score

A credit score is a number between 300 & 900, no one is as lousy as 300 and no one is as good as 900, A higher score is better!

A Credit Score is a grade given to your credit situation and credit history as is reported on your credit report. Credit scores are determined by a complex formula using a number of factors. Your credit score can be compared with those of other credit users. Your credit score is one of the most important pieces of information used to determine whether you are eligible for a loan, such as a mortgage.

There are many different ways to work out credit scores. The major credit reporting agencies grade your credit between 300 to 900, with 900 being the best. Others may base their score on a 1–9 system, with 1 being the best. In either event, the credit score is simply a rating placed on your current credit situation and credit history.

To be considered for a high-ratio mortgage, your credit score has to be above 600.

Determining Factors for Your Credit Score

The most important factors in your credit score are:

Payment History

If you have a revolving credit account, e.g. a credit card, that shows a high balance, payments made more than 30 days late, and payments for the minimum amount due, it will reflect negatively on your credit score;

Current Debt Limits

A number of high balance credit accounts, at or near your credit limit, will downgrade your score. If you are applying for credit and provide your income information to the potential creditor, high balance accounts will be taken into account to determine your ability to repay.

Collection Accounts

One or more accounts that were turned over to a collection agency will downgrade your credit score. This is similar to an untimely payment history, because accounts do not normally go to collection unless they are seriously past due.

Court Judgments and Bankruptcy

Court judgments against you for an unpaid bill, or a prior bankruptcy filing is also seriously damaging to your credit score. Both will remain on your credit score for many years.

Lack of Credit History

A lack of a credit history can also be damaging to your credit score, since there is often little or no payment history upon which to judge your credit repayment practices.

Number of Inquiries

The number of recent inquiries made about your credit report. At times, this can have an effect on your credit score, but it is generally not as important as other factors.

In this audio clip Jackson Middleton explains the Truth about Credit Inquiries.


How to Improve Your Credit Score

If you have a good credit score, you should be proud, and strive to keep it at a high level. On the other hand, if your credit has been damaged, remember that it can be improved over time, with a serious effort on your part. To improve your credit history the most important thing you can do is to pay your bills in a timely manner. In addition, be conservative about obtaining credit, ensuring that the amount borrowed is within your means to repay.

At First Foundation, your credit score is a vital part of our business. We cannot repair your credit score, but we may be able to point out errors in your credit report and give advice on how to improve your credit score.

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If you are interested in learning more about credit score and how it impacts your mortgage applictaion, please feel free to contact us today!

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Last updated Oct 29, 2014