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Credit Scoring: What’s the Grade?

Credit Scores for MortgagesWhen you apply for a mortgage loan lenders want to know the risk. FICO® scores are the credit scores most lenders use to determine your credit risk. Credit bureau scores are often called “FICO® scores” because most credit bureau scores used in the U.S. are produced from software developed in 1956 by Fair Isaac and Company. FICO® scores are provided to lenders by the major credit reporting agencies.

You have three FICO® scores, one for each of the three credit bureaus: Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes, your credit scores change as well. Your 3 FICO® scores affect both the amount of a loan and what loan terms (interest rate, etc.) lenders will offer you.

A FICO score is a three digit number ranging from 300-850 and is calculated according to risk factors. These factors are represented in percentages and are based on the importance of the five categories for the general population (and subject to change).

Amounts Owed (30% of  score):  What is owed on all accounts, on different types of accounts, whether you show a balance on certain types, how much of the total credit line is used, and the amount on installment loans that are still owed.

Your Payment History (35% of score): Payment information, public records and collections, late or missed payment details: how late, how much owed, how recent, and how many.

Length of Credit History (15% of score):  How long your credit accounts have been established, in general, and how long it has been since you used certain accounts.

New Credit & Inquiries (10% of score): Types credit accounts you have, how many of each and the total number of accounts you have.

Types of credit (10% of score): Number of new accounts you have, how long it has been since you opened a new account and the number of recent requests for credit you have made.

What Your Credit Score Means

Once your score is determined, most lenders use a standard “grading” system to categorize the final results. Below is a general guide of scoring. Not all lenders use this, but as a general reference this can help you interpret the credit score you’ve been given.

670 and above A to A+
650 A-
620 B+ to B-
580 C+ to C-
550 D+ to D-
520 or below E

Note: The above information may change at any time.