Each weighs the data in the above categories a little differently, though both prioritize the on-time payments category as the most important. There are 2 main credit score formulas, FICO ® and VantageScore ®. The types of credit accounts, like credit cards, mortgages, car loans, or student loans, in your name.The number of recent applications for credit accounts you’ve made.How far back your credit history stretches.Your payment history, or how often you make on-time payments.Any outstanding balances you owe and what percentage of your total credit limit this represents.Some landlords also check your credit score before making decisions about renting apartments.Ĭredit scores are calculated considering these factors: Assuming each borrows $400,000-roughly the average sales price in the second quarter of 2023, minus a 20% down payment-the person with the 750 credit score would pay about $50,000 less in interest over the life of their loan than the person with the 650 credit score.Įven if you don’t have immediate plans to borrow money, chances are that you may eventually. A high score, meanwhile, may give you access to the lowest rates available, which could save you money over time, especially for large loans, such as mortgages.Ĭonsider this hypothetical example: Someone with a 750 credit score may qualify for a mortgage rate of 7.45% for a 30-year loan, while someone with a credit score of 650 might get a mortgage rate of 7.94%, based on rates reported on for the state of Texas in August 2023. A low credit score could disqualify you entirely from getting a new loan, mortgage, or credit card-or leave you with only high-interest-rate options.
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