Three simple digits that tell an important story: what your credit score means.

Three simple digits that tell an important story: what your credit score means.

Thinking about applying for a mortgage or a home equity line of credit? Then you’re in store for some serious number crunching as you compare rates and loan terms. Your bank or lender, on the other hand, will likely focus on one number: your three-digit credit score. It’s become perhaps one of the most important factors for anyone seeking a loan.

There's a reason for this: Your credit score tells lenders exactly what kind of a borrower you've been. Do you pay your bills late or often miss payments? Your credit score will show it. Are you a responsible borrower, who's always on time and never misses a payment? Your credit score will show that, too.

Before you apply for any loan, it’s important to understand the basics of your credit score and what your three-digit number means. It’ll make your credit report less of a mystery and arm you with the knowledge to approach lenders with confidence.

FICO Scoring

Most lenders rely on the FICO credit-scoring system. This three-digit score ranges from a low of 350 to a high of 850. If you want to borrow money, and you want to borrow it at the lowest possible rate, you'll need a score closer to the higher end.

What Does Your FICO Score Include?

According to, your credit score is based on your payment history, or how often you miss payments or pay your bills late. Other things that impact your score include the amount of debt you owe, the length of your credit history and the types of credit that you use.

The most important factor is your payment history, which FICO says accounts for 35 percent of your credit score. Coming in a close second is the amount of debt you owe, which accounts for 30 percent of your score.

The lesson here? If you want an excellent credit score, you need to pay your bills on time, never miss a payment and pay down as much of your credit card debt as possible.

Factors That Can Harm Your Score

If you lose a home to foreclosure, you can expect your score to drop by 100 or more points. That foreclosure will remain on your credit report for seven years. If you declare bankruptcy, your score will again fall by 100 or more points. Depending on the type of bankruptcy that you file, it’ll remain on your credit report for seven to 10 years.

What Lenders Want

Though it can vary, most lenders reserve their lowest interest rates for those borrowers whose FICO credit score is 740 or higher. That’s considered an excellent score by most lenders.

If your score is lower, for instance below 640, you might struggle to obtain a conventional mortgage loan. Lenders typically worry that borrowers with such low scores are more likely to miss payments and default on their loans.

If you want to qualify for today's lowest interest rates, you'll need to bring an excellent credit score to the table. If you know you have a low score, it might make more sense to establish a history of paying your bills on time and cutting down on your credit card debt before you borrow again. You’ll benefit financially when you apply for that next mortgage or a home equity line of credit.

Have other questions about loans or the home buying process? Talk to one of the experienced mortgage loan officers at Liberty Bank—we’re here to help.


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