What Is a Credit Score?
A credit score is a numerical representation of your creditworthiness, based on your history of borrowing and repaying money. It’s influenced by factors like:
Length of credit history: How long you’ve had credit accounts open.
Credit utilization: The percentage of your available credit that you’re currently using.
Available credit: The total amount of credit you have access to.
Lenders, such as banks or mortgage companies, rely on this score to assess the risk of lending to you. A higher score can lead to loan approvals with better interest rates and terms, while a lower score might result in higher rates or outright denial.
How Are Credit Scores Calculated?
Your credit score is generated by three major credit bureaus—Equifax, Experian, and TransUnion—using a credit-scoring model. The most widely used model is developed by FICO®. The FICO score is calculated based on several key factors, including:
Payment history: Whether you’ve made payments on time.
Credit utilization: How much of your available credit you’re using (lower is better).
Length of credit history: The age of your oldest credit account and the average age of all accounts.
Types of credit: The mix of credit accounts (e.g., credit cards, mortgages, auto loans).
New credit inquiries: Recent applications for credit.
Importantly, personal details like race, gender, or ethnicity are never factored into your score. Each bureau may produce slightly different scores based on the data they have, but the FICO model ensures consistency across the board.
What Is a Good Credit Score?
While the definition of a “good” credit score can vary slightly depending on the lender, most follow a general guideline:
670–739: Good. You’re seen as a reliable borrower, likely to qualify for competitive loan terms.
740–799: Very good. You’re a low-risk borrower, often eligible for better rates and higher credit limits.
800+: Exceptional. You’re in the top tier, with access to the best terms and offers.
The higher your score, the more confidence lenders have in your ability to repay. A strong credit score can save you thousands of dollars over the life of a loan by securing lower interest rates.
Why Your Credit Score Matters
Your credit score is a gatekeeper to major financial milestones, like buying a home or financing a car. A higher score not only increases your chances of approval but also unlocks better terms, such as lower interest rates or higher credit limits. On the flip side, a lower score could mean higher costs or limited access to credit.
If you’re planning to apply for a loan, it’s wise to check your credit score in advance. You can request a free credit report from each of the three bureaus annually at AnnualCreditReport.com. If your score needs improvement, focus on paying bills on time, reducing credit card balances, and avoiding unnecessary credit applications.
Final Thoughts
Your credit score is a powerful tool in your financial toolkit. By understanding how it’s calculated and what lenders consider “good,” you can take steps to improve your score and unlock better financial opportunities. If you’re exploring loan options, connect with a trusted mortgage advisor to discuss specific program requirements and how your credit score impacts your eligibility.
Calls, emails, and DMs are encouraged, please feel free to reach out anytime.
Michael F Nelson, CEO - Efficient Lending, Inc 720.419.3016 or mike@efficientlending.net or @mike_lending NMLS: 1876539 NMLS: 1314188
Note: Loan program availability and requirements may vary. Contact your mortgage advisor for personalized guidance.
By staying informed and proactive, you can make your credit score work for you, paving the way to a brighter financial future.
