If the two of you are planning on refinancing your mortgage or buying a house with a loan in the near future it’s important to get a handle on your credit report and your scores. Higher credit scores typically mean you can qualify for lower interest rates, which can save you tens of thousands of dollars or more over the course of the mortgage.
Before we get into what a ‘good’ credit score is, I want to review how credit scores are calculated.
Examining How Credit Scores are Calculated
Many people, including myself years ago, use credit reports and credit scores interchangeably. While the are related they are not the same. Quite simply, your credit scores are calculated based on what is on your credit report.
Your credit report is a record of your history of payments on your debts and helps lenders determine your credit worthiness. You have 3 credit reports, one with each credit bureau - Equifax, Experian, and TransUnion. Because they’re used for your credit scores, please check to make sure it’s accurate.
Checking Your Credit Report for Free
If you’re looking for a free option on checking your credit reports, you can use Annual Credit Report. You’re entitled to reviewing all 3 of your reports for free. This is a completely free site, no trial, no membership sign-up.
Breaking Down Your Credit Score
- 35% Payment History
- 30% Amount Owed
- 15% Length of Credit History
- 10% New Credit
- 10% Types of Credit
Your credit score from each bureau is a number between 300-850 that each of the credit agencies assign based on the information on your credit report. Since the information should be the same across the board, your scores should be quite similar, but that’s not always the case.
Good Credit Scores Save You Money
Credit scores range from 300 to 850, with many people around 600-700. If you’re looking for a minimum to work for, then 720 or better is something to shoot for. When I was checking FICO to see what interest rates for mortgages you can get based on your credit scores, here’s what it came up with:
I want to mention, while you can get your credit reports through Annual Credit Report, you can not get your credit score.
You can use free option like Credit Sesame to get a credit score using data from Experian updated monthly. The free membership (no credit card required) allows you to see your credit score and you can also get suggestions on ways you can save money on your finances, like mortgages or credit cards. I wrote a review on Credit Sesame if you’re interested in how it works.
Thoughts on Credit Scores
I’d to hear from you. When was the last time the two of you checked your credit reports? Do you have an idea of what your credit scores are?
Photo Credit: The Consumerist