Credit is basically a score that creditors use to assess your creditworthiness. You are given a score between 300 and 850. Just like when you were in school, the higher the score the better the "grade". Each lender has their own cutoffs for credit, and different types of loans have different requirements for your credit score. As a basic guideline though:
- 300 to low 500s – Poor
- Mid-500s to mid-600s – Fair
- High 600s to low 700s – Good
- 720 and above – Excellent
There are number of factors that go into this score such as:
- Percent of on-time payments
- Using the credit cards you have open
- Derogatory marks, such as accounts in collections and bankruptcies
- How long you have had your open credit accounts
- Total number of accounts
- Total hard credit inquiries
All of this information can be found in your credit report. Your credit report is basically a laundry list of every little thing you ever did regarding bills or credit cards. Medical bills, utility bills, rent payments, and that credit card you opened in college to get the free t-shirt, all of these credits get reported to the credit bureau and the information is stored.
It is a good idea to get a copy of your credit report if you are thinking of getting a mortgage. People are often surprised by things they find on theirs. It is not uncommon to find mistakes on your credit report. Bills that you paid off that are still showing in default, accounts that aren't yours, etc. It is a good idea to get any mistakes cleared up before you get turned down by a lender.
More information about your credit can be found by following this link to an article from LearnVest. There are a lot of good articles there. If you have any questions, talk to your lender. If they can't answer your questions, find another lender.
Happy Monday!
Jennifer
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