Credit Score Basics

If you are looking to borrow money or sign up for a new credit card, you are likely wondering, “What is my credit score?” Simply put, your credit score is a number that expresses how you pay your bills. The number ranges from 300 to 850. It tells banks, credit card companies and other potential lenders how responsible you’ve been with loans in the past. Lenders use that score to evaluate how likely you are to make payments on money they lend you.

Credit scores are also called credit ratings and are sometimes referred to as FICO® Scores. FICO Scores were created by the Fair Isaac Corporation, the largest and best known of several companies that provide software for calculating credit scores for individuals.

In order to improve your credit score (or keep it at a good level), you first need to understand the score itself. Here are the credit score basics, including details on how scores are calculated.

Why Do I Need A Credit Score?

You need a credit score to obtain credit. Your credit score represents your creditworthiness, or how worthy you are to be given credit (such as a loan or a new credit card) by a lender.

Whenever you apply for a loan, line of credit, mortgage, credit card or other types of credit, lenders run your credit report. (First, they ask your permission.) This report tells lenders what your credit score is. Generally, the higher your credit score, the lower your risk to the lender.

In other words, if you have a high credit score, you are more likely to repay your loans. In contrast, if you have a low credit score, you are more likely to miss payments or even default on your loan by not paying it back in full.

What Goes Into My Credit Score?

Your credit score is based on your overall credit history. One of the main things that it considers is how long you’ve had credit. This includes the ages of the accounts and related payment history. Account balances and the amount you pay on them each month factor in as well.

Negative factors are accounts that have gone into collections, foreclosures, bankruptcies and other unpaid debt.

Types of Debt Included:

  • Credit cards
  • Car loans
  • Home loans
  • Home lines of credit
  • Student Loans
  • Medical bills that go into collections
  • Utility bills
  • Any other loans you pay monthly

Your credit score is calculated based on your average balance, payment times, and types of debts.

How Is My Credit Score Calculated?

Your credit score is based primarily on information collected by credit bureaus. Your credit score is calculated in five ways. Imagine a pie cut into five slices. Each slice represents one of the factors that affect your credit score. In the lending business, these factors are called “weights.”

Your credit score is calculated based on your payment history, amounts owed, length of credit history, how many types of credit you have and how recently (and how often) you have applied for credit:


WEIGHT Percentage

Key Credit Score Terms

  • Payment history:
     The factor that is given the most weight in calculating your credit score is your payment history. Your payment history includes any times that you failed to make a payment or failed to repay a loan (known in the trade as “delinquencies”). It also includes financial issues that are part of the public record, such as bankruptcies and foreclosures.
  • Amounts owed: How much money you owe to banks, credit card companies and other lenders is also given a lot of weight. The amount of available credit you’re using on revolving accounts is also heavily weighted.
  • Length of credit history: How long ago did you open your first bank account or credit card account? How long have you been using a credit card? These things are weighed when calculating your credit score.
  • How many types of credit you have: Also considered are the types of credit you have, such as credit cards, lines of credit, mortgages and loans.
  • New credit inquiries: Finally, your credit score is affected by how recently and how often you have applied for credit. Typically, every time you apply for credit or open an account, the lender pulls your credit report. A record is kept each time this happens. These inquiries into your credit history affect your credit score.

Who Can See My Credit Score?

The main people or companies who can see your credit score or credit report are you and any company or business with whom you have applied for a loan. Some companies may run your credit history prior to your employment with them, but before they can do this, you need to give them permission. There’s usually a form involved in this process.

What Isn’t Involved in My Credit Score?

Although you may have read some articles claiming otherwise, your credit score does not include the following: your religion, your race, your gender, your nation of origin, or your marital status. A credit score simply looks at financial details, and none of these things fall into that category.

What is a Good or Bad Credit Score?

Here’s a breakdown of what scores indicate:

750+ – Excellent

700-749 – Good

650-699 – Fair

649 or lower – Poor

Regardless what your score is WestWind Homes can help, we have programs in place that can help repair or build your credit score. We can help you stop renting or get you down the path of a new home that fits your families needs.

How Does My Credit Score Affect My Ability To Buy A Home?

If you are like most folks, you can’t buy a home for cash. You need to borrow. That means you need a mortgage and a lender. Your lender will look at your credit score to determine if you are a safe risk.

If you are borrowing to buy a home, you need a credit score of 580 or higher. However, If your credit score is below 580 or you’ve been rejected by other home builders, there’s hope. WestWind Homes can help.

WestWind Homes has been building award-winning homes since 1993 in Laredo TX and upper Rio Grande Valle area. We’ve developed a custom program called the Home Buyers Club to help families get into their dream home.

In most cases, we can help an individual with a less than perfect credit score into their home within three months of starting the program. Learn more by calling 800-587-1302 then press 2 to speak to someone in Laredo or 3 for someone in the Rio Grande Valle.

How to Improve Bad Credit

If your credit has some blemishes, you can take control of the situation for a brighter future. Here’s how.

  1. Use your credit cards responsibly. Don’t max them out, and pay your bill on time every month.
  2. Don’t open a lot of new accounts at once. This is especially important if you’re thinking of applying for a home loan. You might be tempted to start purchasing furniture, lawn and garden tools, appliances, and other things on credit. Hold off until you’re approved and have signed the paperwork. Too many new accounts in a certain period of time can drop your credit score drastically. Then, you might get turned down for a home loan.
  3. Remember that other things, like medical and utility bills end up on your credit report as well. Even federal student loans count. Anything paid late can lower your credit score.
  4. Leave unused or paid off credit card accounts open. Your credit score weighs many things, including the amount of credit that you have versus the amount of credit that you owe. Paid off accounts work in your favor. They increase the total amount of credit that you have been granted, while not counting towards the amounts due. This is an important part of your debt to income ratio.
  5. Don’t give up. Everyone makes mistakes. If you hit a few bumps, don’t assume that you’ll have a bad credit score forever. Pick up where you left off and begin making payments on time. If you owe money to debt collectors, work with them to set up an achievable payment plan. It may take a few months to a year, depending on how badly you “dinged” your credit, but your score will eventually improve.

Maintaining a Good Credit Score

A good credit score is a great thing. It can get you better interest rates on car loans, and even ensure that you qualify for a home loan. However, once you have excellent credit, you need to keep it. Thankfully, there are some ways to keep your credit score in shape.

Pay your bills on time

This seems almost too simple, and not really worth mentioning, but it should be emphasized here because it really is that easy! As long as you pay your bills on time, your credit score will not go down, and most likely, will even go up.

Don’t sign up for unnecessary credit cards

It can be tempting to take advantage of the sales offers at department store registers. “Receive 10% off your purchase today” or “receive points and earn a gift certificate” or whatever the usual offers are. However, if every credit card that you sign up for reflects poorly on your credit score. Restrain yourself from taking advantage of the “deals” that leave you paying a 24% interest rate on your purchases.

Review your credit reports

Most people don’t realize that they can check their credit reports once a year for free. You can receive one report from each of the three major credit bureaus without your inquiries affecting your score. These free reports usually don’t have a credit score attached to them, but you will be able to review your open and closed accounts, so take the time to check them for discrepancies.

Pay off some debt before creating new accounts

The number one thing that affects your credit score is the number of accounts that you currently have a balance on. Because of this, you’ll want to pay down some of the debts that you owe before applying for anything new, whether it is a credit card or a home loan. This ensures that your debt to income ratio stays in the “good” range.

Understand the difference between secured and unsecured debts

Secured debts are viewed more positively by credit bureaus that unsecured one. The former are loans that have something to secure them – cars, houses, boats, and so on. The latter consists of loans that are extended to you on good faith, such as credit cards. You always want a good mix of the two, but not so much that your credit appears to be one-sided.

About WestWind Homes Financing

Since 1993, WestWind Homes has been fulfilling families’ dreams by creating an exceptional home ownership experience with extraordinary customer service. WestWind Homes has been building award-winning homes in vibrant communities. We deliver quality and craftsmanship in every home we build. Welcome to the WestWind Homes experience our team of dedicated professionals is building the house that your family will want to call home. We have the commitment, the experience, and the team to build you the best home at the best price. Together, we are making Laredo, and the Rio Grande Valle a better place to live.

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