Having a good credit score is important, especially for a new home loan. With that being said how is the credit score determined? Below are 3 factors that are really important in determining what the FICO score.

1. Payment History

Payment history is a very important factor and accounts for roughly 35% of your overall FICO score. When underwriters analyze your credit report they want to see no late payments in the last 12 months, especially for refinances. Payments that are over 30 days late can impact your score negatively and may result in a denial of a home loan.

2. Amounts Owed

Amounts that you owe on your mortgage is the second biggest factor, which accounts for 30% of your overall FICO score. Don’t max out all of your credit cards, keep them at around half of what the actual limit is. This shows that you are not over extending your financial responsibility and that you are responsible.

Avoid going over your credit card limit. This can impact your score negatively.

3. Length of Credit History

Length of credit history will show an underwriter that you have experience paying your bills on time and are likely to do so. Keep your credit cards active for as long as you can. This doesn’t mean that you have to keep using them, just put them aside for emergencies.

There are many ways to improve your credit score. Regardless of what your score is, it’s important to know which things impact your score  and how easy it is to improve your score to reach your financial goals. There is no one right answer for everyone, becoming familiar with your credit is always the first step, and paying your bills on time is a must.