Your credit score is one of the most important numbers in your daily life. Credit scores are used for loan approvals, determining interest and insurance rates, when screening for employment and rental applications, and even determining eligibility for cell phone contracts. But not everyone knows how credit scores are determined – and this is important to know.

Developed in 1956, a Fair Isaac Score is a three digit number ranging from 300-850, according to the following risk factors:

Payment History (35% of score)

Your payment history is the largest component of your credit score. Lenders want to know your past performance for paying off your loans. Lenders are interested in the type of loan you had, such as a credit card, mortgage, installment loan (a loan with a fixed number of payments, like a car payment), consumer finance account (generally considered a lower tier type of loan made by companies who generally lend to higher risk individuals), ect. Lenders are particularly interested in these other factors as well:

  • Payment information on many types of accounts
  • Public record and collection items
  • Details on late or missed paments
  • Specifically, how late they were, how much was owed, how recently they occurred and how many there are

Amounts Owed (30% of score)

In addition to the types of loans and your payment history, lenders are concerned with how much money you owe. Even if you have a perfect cerdit record, there is a limit at which lenders will probably not lend you any more money – simply because your debt to income ratio doesn’t support lending any more money to you. These factors are considered for your FICO (Fair Isaac Company) score:

  • Amount owed on all accounts
  • Amount owed on different types of accounts
  • Whether you are showing a balance on certain types of accounts
  • How much of the total credit line is being used
  • How much of installment loan accounts is still owed

Length of Credit History (15% of score)

Lenders prefer lending to people who have consistently shown they can handle credit in the past. Chances are they will be able to handle making payments in the future. Some of the factors that make up your FICO score are:

  • Time since all accounts opened
  • Time since account opened, by specific type of account
  • Time since account activity

New Credit & Inquiries (10% of score)

New credit refers to how much credit you have taken out recently. Lenders may become concerned if you have recently applied for thousands of dollars in loans and continue to request more lines of credit.

  • Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
  • Number of recent credit inquiries
  • Time since recent account opening(s), by type of account
  • Time since credit inquiry(s)
  • Re-establishment of positive credit history following past payment problems

Types of Credit Used (10% of score)

Types of credit include credit cards, retail credit accounts, mortgages, installment loans, and consumer finance accounts. In addition to the types of credit, your FICO score will also encompass the number of each type of credit, how often they are used, and any recent information for them.

Grand Realty has the resources to assist you in every phase of the home buying process. If you have any questions about credit scores, getting pre-approved for a mortgage, or starting the homebuying process, the Grand Realty agents are able to assist you. For more information on credit scores, Pensacola MLS, Pensacola FL homes or Pensacola FL homes for sale, give us a call. (850) 512-1185. We look forward to assisting you with all your buying and selling needs.