In short, it’s a credit score. But not just any credit score \u2013 it’s the credit score that lenders use to decide whether or not to give you a loan. <\/p>\n\n\n\n
If you’re looking to get a home loan so you can start house hacking<\/a>, your FICO score will be one of the deciding factors.<\/p>\n\n\n\n So how is this number calculated? And what are the factors that go into it?<\/p>\n\n\n\n Fortunately, the calculation isn’t exactly a closely guarded secret.<\/p>\n\n\n\n Your FICO score takes into account your payment history, your credit utilization, the age of your credit accounts, your credit mix, and any new credit inquiries.\u00a0<\/p>\n\n\n\n Let\u2019s review each of these factors in more detail:<\/p>\n\n\n\n Payment history is the biggest factor that goes into your FICO score. <\/p>\n\n\n\n It’s important to make sure you’re always making on-time payments.<\/p>\n\n\n\n If you have a history of late payments, your FICO score will suffer as a result. On the other hand, if you have a good payment history, your FICO score will be boosted.<\/p>\n\n\n\n Simply put, if you’re looking to boost your FICO score quickly, the first step is to make sure you’re paying your bills on time.<\/p>\n\n\n\n The next factor is your credit usage.<\/p>\n\n\n\n Your credit usage (or “utilization rate”) is the amount of debt you have relative to your credit limits.<\/p>\n\n\n\n For example, if you have a credit card with a $1000 limit and a $500 balance, your credit utilization would be 50%.<\/p>\n\n\n\n The higher your credit utilization, the lower your FICO score will be. This is because high credit utilization is a potential indicator of financial stress, and lenders are reluctant to lend to people who are already are maxing out their debts.<\/p>\n\n\n\n The next factor is the average age of your credit accounts.<\/p>\n\n\n\n Your FICO score will benefit the longer you’ve been using credit.<\/p>\n\n\n\n Lenders like to see that you’ve had plenty of history with using and paying back debt.<\/p>\n\n\n\n The longer a credit line stays open, the better.<\/p>\n\n\n\n So if you’re looking to improve your FICO score, one of the best things you can do is keep your oldest credit card(s) open and active.<\/p>\n\n\n\n That way, you’ll have a longer credit history, and a better average age of accounts.<\/p>\n\n\n\n Another major factor that goes into calculating your FICO score is your “credit mix.”<\/p>\n\n\n\n This refers to the different types of credit accounts you have, such as credit cards, mortgages, auto loans, etc.<\/p>\n\n\n\n Someone who has both a mortgage and a credit card will benefit from this factor more than someone who just has a credit card.<\/p>\n\n\n\n So, if you’re looking to improve your FICO score, try diversifying your credit mix. It could help you get approved for that loan you’ve been wanting.<\/p>\n\n\n\n That said, this is a relatively small factor compared to the others mentioned above.<\/p>\n\n\n\n The next factor is whether you’ve made recent credit inquiries.<\/p>\n\n\n\n When you apply for a new credit card, the lender will typically perform a hard inquiry on your credit report.<\/p>\n\n\n\n This type of inquiry can lower your FICO score by a few points.<\/p>\n\n\n\n Thankfully, the effect of a hard inquiry on your FICO score will typically disappear after a year or so.<\/p>\n\n\n\n In short, applying for a new credit card can have a small negative impact on your FICO score. However, as long as you manage your credit responsibly, your FICO score should quickly rebound.<\/p>\n\n\n\n Like credit mix, this is also a smaller factor when compared to the rest.<\/p>\n\n\n\n Your credit score will fall into a range between 300 and 850.<\/p>\n\n\n\n Anything above 650 is considered Good<\/strong>. <\/p>\n\n\n\n Anything below 550 is considered Poor<\/strong>. That means it’s unlikely you\u2019ll get approved for loans without a cosigner or extremely high interest rates.<\/p>\n\n\n\n On the opposite extreme, if your score is between 750 and 850, that means you have Excellent<\/strong> credit. This is the range you\u2019ll want to be in for the best loans with the best interest rates. <\/p>\n\n\n\n Lenders use your credit score to determine how likely you are to repay a loan.<\/p>\n\n\n\nFICO Score Factors<\/h2>\n\n\n\n
![\"fico](\"https:\/\/househackhelp.com\/wp-content\/uploads\/2022\/09\/Screenshot-_72_.webp\")
<\/figure>\n\n\n\nPayment History<\/h3>\n\n\n\n
Amounts Owed (Credit Usage)<\/h3>\n\n\n\n
Age of Credit Accounts<\/h3>\n\n\n\n
Credit Mix<\/h3>\n\n\n\n
New Credit Inquiries<\/h3>\n\n\n\n
FICO Score: The Good, The Bad, and The Ugly<\/h2>\n\n\n\n
Importance of a Credit Score When Buying A House<\/h2>\n\n\n\n
![\"improve](\"https:\/\/househackhelp.com\/wp-content\/uploads\/2022\/09\/image-684x1024.png\")
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