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What Is a Good Credit Score?

A good credit score is a vital part of the home financing process. We'll answer What is a good credit score?, Why do I need it?, and How can it affect my mortgage options?

What Is a Good Credit Score? Wait, What Is a Credit Score?

The heavy hitter in the world of credit scores is the Fair Isaac & Company Inc. (FICO). Established in 1956, FICO gained notoriety by blending business and mathematics to provide market analysis. A FICO score provides businesses with insight on your borrowing behavior so they can decide whether to lend to you or not.

To understand what a good credit score is, it should help to understand the composition of a credit report. It is made from information kept, on you, by the three credit bureaus (Experian, TransUnion, and Equifax) and gauges how likely you are to pay back your loan based on your payment history.

Here's the breakdown:

  • 35% of your FICO Score is based on your specific payment history
  • 30% is your current level of indebtedness
  • 15% is the time your open credit has been in use (ten-year-old accounts are good, six-month-old ones aren't as good)
  • 15% is types of credit available to you (installment loans such as student loans, car loans, etc. vs. revolving and debit accounts like credit cards)
  • 5% is pursuit of new credit

What a Good Credit Score Is to You?

A FICO score is ranked from 350 to 850, and the average score is about 680. What a good credit score is in strict, basic terms is generally anything above 600. Past delinquencies, payment behavior, current debt level, length of credit history, types of credit, and number of inquiries are all considered in credit scores.

Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will put you on track to a good credit score.

Your credit report must contain at least one account which has been open for six months or more and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.

Everyone is entitled to one free copy of their credit report per year. Once you understand what a good credit score is, how credit scores work, and how they affect you, you can check what your score is using MCity's credit application, and then you can contact us when you're ready to look to move forward with your mortgage.