Your credit score is a number that indicates the level of risk of default you represent to a creditor at a given moment in time. There are several scoring models, but most are based on the FICO Score, a credit score created by the Fair Isaac Corporation, which is used in most lending decisions. It ranges from a low score of 300, which represents an extremely high risk, to 850, representing an extremely low risk.
What Is A Good Credit Score to Buy a Car or House?
The credit reporting agencies are not compelled to provide you a credit score at no cost. However, they are available for purchase through the credit reporting agencies. The FICO Score consists of five components.
How you have paid
The largest factor in the score (35% of it) is how you’ve paid your creditors. Consistent, on-time payments will improve your score. Late or missed payments will have a negative effect on your score. The more frequent, recent, or severe the missed payments are, the greater the impact they will have.
What you owe
Thirty percent of your score is based on how much you owe, particularly in relation to your available balances. Maxing out your accounts can have a detrimental effect on your score. Keeping your balances at half your limits or below can help keep your score strong.
How long it has been
The age of your accounts makes up 15% of your score. Typically, the longer your credit history, the better. Having a longer credit history gives more data to base lending decisions on.
What kind of credit
Having a variety of credit types is generally positive for your credit score and shows that you can handle a mix of credit. This is 10% of your overall score.
What is new
Having many new accounts or excessive inquiries from applying for new accounts can indicate greater risk, as it looks like you are in need of a lot of credit quickly, which could be indicative of a financial problem. New credit makes up 10% of your credit score.
Auto Loan Credit Score
Lenders who use credit scores in determining whether to grant credit may also use them to determine the price of the credit, a process called risk-based pricing. Typically, a credit score of 700 or higher will put you in a good position to find favorable auto loan terms. If your credit score is lower, you'll probably be offered a higher interest rate.
For example, two people may apply for the same loan with the same financial institution. One who has a credit score of 740 may get the loan with an interest rate of 4.2% while the other with a score of 680 may get it with a rate of 6.5%. A third person with a score of 580 may be declined outright.
Mortgage Loan Credit Score
For someone looking to take out a 30-year $250,000 mortgage, a credit score can save you money on your payment and interest. With a good credit score of 670, the lender is willing to approve you for a low APR of 3.43%. The monthly payment would be $1,113, and interest paid over the loan term would be $150,732. If someone had a fair credit score of 659, and qualified for a higher APR of 3.86%, they’d pay $1,173 per month and $172,184 in interest. Having a good credit score would save $60 per month and $21,453 in total interest.
There are steps that can be taken to improve a credit score. Making payments consistently and on time is the best practice for a high score. Also, avoid maxing out your accounts and submitting excessive credit applications in a short period of time.
Metro Credit Union in Omaha, Nebraska
Using credit wisely, with an understanding of all of your responsibilities and your rights, can set you up for long-term benefits. Credit can help you reach your financial goals, and if it’s well-handled, can be an affordable and worthwhile tool. Visit Metro Credit Union’s FREE Save and Succeed resources for a 20-minute course about mastering credit and optimizing your score.
Metro Credit Union Mortgage is the home lending side of Metro Credit Union. Buying your first home is a big step, but it doesn't have to be a scary one. The more you know about the home buying process, the more confident you'll feel about making these important decisions that will shape your future. When you're in the market for a home loan, you know you can trust your credit union to provide a great rate, great service, and all with fewer and lower fees. And, we've got you covered with a wide variety of lending options. Use our financial calculators for calculating a mortgage or refinance.