What’s In Your Credit Score?

Your credit and financing your home renovation project.

If you’re considering undertaking a major home renovation project, you may also be planning to take out a loan to cover those costs. Whether that loan comes from refinancing your home, tapping your home’s equity or securing a personal loan, your ability to obtain a loan will be based largely on your credit history, particularly your credit score.

Credit Management

Credit scores are a mystery to many consumers, but they don’t have to be. Lenders assess a three-digit score to your credit with scores above 700 usually suggesting “good credit management” according to Experian, one of three credit bureaus that track your score.

Credit scores can differ somewhat by each reporting bureau with some lenders relying strictly on FICO to supply that score. FICO stands for “Fair Isaac Corporation,” the leading consumer reporting company that supplies analytics that help companies assign a score.

FICO Score

Because FICO is the most transparent of all score providers, we can tell you how your score is calculated by them. Other providers hold closely to FICO, thus the following parameters should be universally close:

1. Payment History — Paying your bills on time is important to your creditors and is given the most weight by FICO, accounting for 35 percent of your score. Also considered are the severity of your delinquencies, the number of post due items on file and number of accounts paid as agreed. Adverse information, such as bankruptcies, can hurt you too.

2. Amounts Owed — Running up balances on your credit accounts can work against you especially if these balances are carried forward from month to month. FICO ascribes 30 percent of your score to this category. The number of accounts with balances, the different types of accounts (credit cards, personal loans, mortgages, etc.), and the percentage of money borrowed per each credit line is important too.

3. Length of Credit History — The longer you have credit, the better it reflects on your credit score. Also considered: the time since your account had activity. Fifteen percent of your score is weighted by your credit history.

4. New Credit — Don’t make too many credit applications when seeking to refinance. Multiple inquires can ding your credit score as can opening too many new accounts at once. Although accounting for just 10 percent of your score, new credit can bring your score down enough to affect your credit.

5. Types of Credit Used — Having a good mix of credit available is certainly helpful. Not just credit cards, but a mortgage, consumer finance, retail accounts and installment loans can affect your score. Spread out your credit to different types of accounts to benefit the most. The final 10 percent of your credit score is determined by this category.

If you have a low score, you now know how best to bring up your score before applying for credit. Even a slight rise in your credit score can spell the difference between getting a favorable interest rate on a loan or having to pay a higher rate, making it imperative that you improve your score first and apply for credit second.

Related Articles

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Should I Refinance Now or Wait?

Don’t Let Your Credit Sabotage Your Home Renovation Plans

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