Your Guide to Understanding Credit Scores

Not the most scintillating topic, we know. But, a critical one for new-home buyers because it often can dictate whether you can pursue your Florida dream home. A good credit score allows you more leeway and choices when it comes to applying, and being approved for, mortgages. A poor credit score limits your mortgage choices or negates them all together. Read on for our hopefully helpful guide to Credit Scores 101.

What’s a Credit Score?

A credit score is a snapshot of your financial health. It’s sort of like an all-purpose code that someone can interpret at a glance. Specifically, it’s a three-digit number. The range usually extends from 300 to 850, with 300 being truly awful credit and 850 being truly superior credit. A score in the mid to upper 700’s is considered very good credit — what you want. Calculator

How Are Credit Scores Compiled?

Notice we said “scores.” You have three, thanks to the existence of three main credit bureaus — Equifax, Experian and TransUnion. The credit bureaus generate your credit scores by using credit-scoring models such as VantageScore and FICO. The bureaus also can generate a unique report using their own models.

The data the credit bureaus glean to determine your credit scores, comes from your track record — how faithfully you pay bills, how many accounts you have, whether those accounts are in good shape and other common barometers of your past and current financial behavior.

The good news? No personal information is used in any credit-score compilation.

What’s a Scoring Model?

A scoring model is something to make your head hurt unless you’re banking-and-finance-savvy. For the rest of us, those VantageScore and FICO scoring models resemble a recipe. They incorporate your credit history — how long you’ve had it, how much debt you have, payment history, types of debt (student loans, prior mortgages, auto loans, etc.) and credit limits (how far you have or have not pushed them). Equifax, Experian and TransUnion created VantageScore in a joint effort to make credit scores more consistent. VantageScore’s 3.0 model checks up to 24 months of your credit activity. Both it and FICO have multiple scoring models, which is why your three credit scores can vary. And, it’s also why you should check them periodically to see what impact your financial choices are having on your financial health.

Why Do I Have Different Scores?

The larger explanation is above — multiple ways to calculate them. There are factors beyond your control, however. The financial institution holding your truck loan might not report your payment history on it to all three credit bureaus. The financial institution holding your 12-months-same-as-cash loan on your new premium mattress and box springs may use a different credit scoring model.

You can’t control any of that. What you can do is practice good financial health. Ready to wield your good credit in pursuit of a new Florida home? As Florida’s Custom Home Builder, ICI Homes can help. opens in a new window Click here to begin.