How Your Credit Score is Determined?

Sean W. Preston - March 28, 2023
When you buy a home, your credit score plays an essential role: It can impact what loans you’re eligible for and the interest rate you get (which will affect your monthly payment costs).
 
But what determines your score? The exact elements depend on which scoring method you’re looking at, and lenders often use FICO.
Generally speaking, credit scores range from 300 to 850 and are influenced by the following five factors:
 
  1. Payment History: Paying credit card dues and other monthly bills on time can help increase your credit score. It can hurt your score to be consistently late on payments or overdue on some accounts. This is usually the biggest chunk of your overall score (about 35%).
  2. Credit Mix: Having a mix of credit types — auto loans, credit cards, mortgages — shows you have a wide range of experience managing debt. Only having one type of debt (or no debts) doesn’t necessarily reflect as well. Typically, this is roughly 10% of your credit score.
  3. Credit Utilization: Your credit utilization rate is how much of your credit lines you’re currently using. Keeping your balances under 30% of credit limits will help your score the most. And this is likely the second most important number, at about 30% of your credit score.
  4. New Credit: If you apply for a new credit account, it can decrease your score temporarily. It’s best to avoid opening multiple new credit lines at once. Expect this to make up about 10% of your score.
  5. Length of Credit: The longer you’ve had your credit cards and other accounts, the more it helps your credit score. This is why you shouldn’t close a credit account just because you aren’t using it. And this factor is about 15% of your credit score.
Thinking of buying a home or refinancing? Stay on top of payments, keep your credit utilization low, and avoid new credit to help keep your score on the higher end.
 
Reach out for more guidance around homebuying and homeownership.

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