Understanding Credit Scores

Everybody has a credit score—several, in fact. These scores derive from your credit history, which is the full account of your borrowing habits. In most cases, the score is a three-digit number between 300 and 850. But what does that number mean? If you’re considering borrowing money or refinancing, it’s important to learn more about credit scores before you compare loans.

 

Why Are Credit Scores Important?

Your credit scores are based on the contents of your credit report. They take current information from the report and translate it into a single value representing your credit risk. If your score is low, lenders are less likely to extend you a line of credit. Alternatively, they may offer poor terms to compensate for the increased risk. If you have a high score, it’s much easier to get a loan or new credit card.

Different credit scores are available, but the most common is the FICO score, created by the Fair Isaac Corporation. According to the company, 90 percent of the top lenders in America use the FICO model to make their lending decisions.

 

What Is a Good Credit Score?

A high credit score is an indication of good credit health. In the FICO model, scores break down as follows:

 

  • Exceptional: 800-850
  • Very good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Very poor: 300-579

The average score for Americans is 701, according to the consumer credit reporting company Experian. 

 

What Are the Components of a Credit Score?

The FICO model considers different elements of your credit history, and weights them according to their importance:

 

  • Payment history (35 percent): Whether you pay credit accounts on time.
  • Amounts owed (30 percent): The amount of available credit you use.
  • Length of credit history (15 percent): Longer credit history usually strengthens your score.
  • Credit mix (10 percent): The different types of credit you use.
  • New credit (10 percent): Opening new accounts in quick succession may indicate financial difficulties and a higher risk.

 

How Can Refi Help Improve Your Credit Score?

Consolidating debt is one way to help rebuild your credit score. For example, by using a cash-out refinance loan, it’s possible to unlock the value stored in your property. The loan turns your equity into a cash sum to pay down credit cards and other loans. Unfortunately, when you compare loans, the wealth of options makes it difficult to know exactly which product is the best for your current situation. Furthermore, a less-than-perfect credit score may make it harder to get favorable terms when refinancing. That’s where Refi can help. As a loan validation and matching service, Refi has the ability to pre-qualify customers with a wide range of partners. Even if you have poor credit, it may be possible to find a solution. Fill in the online loan inquiry form today to start learning how to compare loans and repair your credit.

 

 

 

Sources

https://refi.com/home-refinance/

https://www.experian.com/blogs/ask-experian/credit-education/score-basics/understanding-credit-scores/

https://www.credit.com/credit-scores/what-is-the-average-credit-score/

https://www.myfico.com/credit-education/credit-scores

https://www.experian.com/blogs/ask-experian/infographic-what-are-the-different-scoring-ranges/