Credit Score
Definition and meaning of Credit Score in real estate.
A credit score is a three-digit numerical value calculated from a consumer's credit history to represent their creditworthiness.
In more detail
Calculated using mathematical models, this score helps lenders evaluate the risk of lending money for a mortgage or other loans. The most common scoring system, FICO, ranges from 300 to 850, with higher numbers indicating lower risk. A borrower's score is determined by payment history, debt amounts, credit age, new credit, and credit mix.
Real estate buyers with higher scores typically qualify for lower interest rates, which can save them thousands of dollars over the life of a loan.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Typical range | 300 to 850 |
| Most common model | FICO score |
| Major influence | Mortgage interest rates and loan terms |
A buyer improves their credit score from 620 to 740, allowing them to secure a lower interest rate on their new home mortgage.
Frequently asked questions
What factor has the biggest impact on a credit score?
Payment history, which tracks whether a borrower pays their bills on time, has the most significant impact on a credit score.
How does a low credit score affect a mortgage application?
A low score can lead to higher interest rates, larger down payment requirements, or the outright rejection of a mortgage loan application.
Does checking your own credit score lower it?
No, checking your own score is considered a soft inquiry, which does not impact or lower your credit score in any way.
Related terms
Sources & references
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