How Do I Calculate My Credit Score?

If you’re kicking off your homebuying journey you probably already know a good credit score is an important factor to funding the home of your dreams. This is because your credit score is the biggest factor in determining your credit risk and your interest rate. The higher your score, the less risky you are to lenders.

While the exact formula for calculating your credit score is protected by the Fair Isaac Corporation, FICO has shared the five major factors that affect your score and how much weight they’re given in the formula. Let’s take a look:

PAYMENT HISTORY (35%)

Your payment history accounts for 35% of your FICO score. Making your payments on time is the best way to keep your score up. The frequency of missed payments, number of days past due you pay your bills, and how recently payments have been missed all negatively impact this number.

HOW MUCH YOU OWE (30%)

The amount owed on your loans and credit cards makes up 30% of your score. This is comprised of the entire amount you owe, the number and types of accounts you have, and the proportion of your debt compared to your credit limit. While new loans may drop your score temporarily, older loans that are closer to being paid off can increase it because they prove a successful payment history.

LENGTH OF YOUR CREDIT HISTORY (15%)

While you might think that the length of your credit history should account for more of your score, it only accounts for 15%. The longer your history of making timely payments, the higher your score will be. People often think that it’s wiser to avoid carrying debt, but the lack of debt history can actually hurt your score.

TYPES OF ACCOUNTS (10%)

The types of accounts you hold makes up 10% of your score. It’s often beneficial to have a good mix of accounts including retail and credit cards, home loans, and auto loans.

RECENT CREDIT ACTIVITY (10%)

And finally, your recent credit activity makes up the final 10% of your score. If you’ve recently applied for new accounts (successfully or otherwise), it suggests potential financial trouble and can lower your score. On the contrary, maintaining the same loans or credit cards for a long time and paying them off promptly increases your score.

Not quite ready to dive into a hard credit check? Try starting with a pre-approval. Getting pre-approved will not only help identify any potential issues before making an offer, it also enables you to shop smarter, and strengthen your offer.