Who determines your credit score?
There are three major credit bureaus that collect information about you from creditors: Experian, Equifax, and TransUnion. The information they compile on you becomes your credit report and the basis for your score. They each have different information about you depending upon which of your creditors report to them and what they share. This is why your score may vary from one company to the next.
There are different models used to calculate credit scores, and there are other companies or brands besides the three mentioned that give you credit scores. FICO is one of them. When a lender or mortgage broker pulls your credit score, they mainly rely on your FICO score which is a particular brand of credit score. Even within FICO, there are different versions of scores. Mortgage lenders usually check FICO Scores 2, 4, and 5.
What makes up or impacts my credit score?
What is considered good or bad credit?
Credit score requirements vary depending on lenders and the type of loan. We’ve listed minimum scores for loan types below. Keep in mind that these are minimums. When your score is lower, you are considered more of a risk as a borrower. This can impact the interest rates you receive.
800-850 = Exceptional
740-800 = Very Good
670-740 = Good
580-670 = Fair
300-580 = Poor
(FHA = 580; VA = 580; Conventional= 620; USDA= 640)
What can I do to increase my credit score?
- Keep debt balances low: Debt utilization accounts for 30% or credit score. Pay down those debts and it will help improve your score.
- Increase credit limits: This will decrease your debt utilization ratio.
- Make payments on time: This is critical. Late payments signal default risk.
- Avoid taking out any new debts or lines of credit.
FAQ about Credit Scores:
Why is the score you’re using lower than my Credit Karma score?
Remember not all credit scores are the same. It depends upon from where your credit information is pulled (Equifax, TransUnion, and Experian), and the formula used to create the score. When a lender or mortgage broker pulls your credit score, they mainly rely on your FICO score which is a particular brand of credit score. Even within FICO, there are different versions of scores. Mortgage lenders usually check FICO Scores 2, 4, and 5.
Credit Karma is another brand of credit score. FICO and Credit Karma are based on different formulas and potentially different information depending on the source they use for your credit history. Often the Credit Karma score is higher than FICO. Your broker and lender will use your FICO score for the loan process.
