## Credit Scores Used by Mortgage Companies
When you apply for a mortgage, your credit score is one of the most important factors that lenders will consider. It’s a number that represents your creditworthiness, and it’s used to determine your interest rate and loan terms.
There are many different types of credit scores, but the most common type used by mortgage companies is the FICO score. FICO stands for Fair Isaac Corporation, the company that developed the score.
FICO scores range from 300 to 850, with higher scores indicating better creditworthiness. Mortgage companies typically consider borrowers with FICO scores of 620 or higher to be good risks.
### How Credit Scores Are Calculated
FICO scores are calculated using information from your credit report. This information includes:
* **Payment history:** This is the most important factor, and it accounts for 35% of your score. It shows how consistently you’ve made your payments on time.
* **Amounts owed:** This accounts for 30% of your score. It shows how much debt you have relative to your available credit.
* **Length of credit history:** This accounts for 15% of your score. It shows how long you’ve had credit accounts open.
* **New credit:** This accounts for 10% of your score. It shows how often you’ve applied for new credit recently.
* **Credit mix:** This accounts for 10% of your score. It shows the variety of credit accounts you have, such as credit cards, installment loans, and mortgages.
### How Mortgage Companies Use Credit Scores
Mortgage companies use credit scores to assess your risk as a borrower. They want to make sure that you’re likely to make your payments on time and in full.
The higher your credit score, the lower your interest rate will be. This is because lenders view borrowers with higher credit scores as being less risky.
In addition to your interest rate, your credit score can also affect the terms of your loan. For example, borrowers with lower credit scores may be required to make a larger down payment or pay higher closing costs.
### What You Can Do to Improve Your Credit Score
If your credit score is not as high as you’d like it to be, there are some things you can do to improve it. Here are a few tips:
* **Pay your bills on time, every time.** This is the most important thing you can do to improve your credit score.
* **Keep your balances low.** Don’t use more than 30% of your available credit on any one card.
* **Don’t open too many new credit accounts in a short period of time.** This can hurt your score.
* **Dispute any errors on your credit report.** Incorrect information can lower your score.
* **Build a long credit history.** The longer your credit history, the better your score will be.
Improving your credit score takes time and effort, but it’s worth it. A higher credit score can save you thousands of dollars on your mortgage.
## Types of Credit Scores
There are many different types of credit scores, but the most common type used by mortgage companies is the FICO score. FICO scores range from 300 to 850, with higher scores indicating better creditworthiness.
Other types of credit scores include:
* **VantageScore:** This is another popular credit scoring model that is used by some lenders. VantageScores range from 300 to 850, similar to FICO scores.
* **Experian National Equivalency Score:** This is a credit score that is developed by Experian, one of the three major credit bureaus. Experian National Equivalency Scores range from 330 to 830.
* **Equifax Risk Score:** This is a credit score that is developed by Equifax, another one of the three major credit bureaus. Equifax Risk Scores range from 280 to 850.
It’s important to note that different lenders may use different types of credit scores. It’s also important to note that your credit score can vary depending on the credit bureau that is providing the score.
## How to Get Your Credit Score
You can get your credit score for free from a number of different sources. Here are a few options:
* **AnnualCreditReport.com:** This is the official website for obtaining your free annual credit report from each of the three major credit bureaus.
* **CreditKarma.com:** This is a website that provides free credit scores and credit monitoring.
* **NerdWallet.com:** This is a website that provides free credit scores and other financial information.
Getting your credit score is a good way to track your creditworthiness and identify areas where you can improve.