What’s a FICO Score and what role does it play in my home purchase?
Your FICO credit score can make or break your chance for qualifying for a home loan. Lenders use the FICO score to help term the terms, type and amount of your mortgage loan. But just what is a FICO score? It’s the three-digit number, ranging from 300 to 850, that most lenders use to determine your credit risk.
Some of the factors that go into your score are your payment history are the following:
Payment History–35% How you’ve handled credit cards, retail accounts, installment loans, finance company accounts, mortgages, etc. FICO also looks into public records such as bankruptcy, wage attachments, and collections. For payment delinquencies, they want to know, how much, how many, and how long ago they occurred.
• Amounts Owed–30% What you owe, what types of accounts, and how many. The percentage of your credit line your balances typically use. The percent of the principal still owed on installment loans.
• Length of Credit History–15% How long the account’s been opened, its specific type, and account activity.
• New Credit–10% Number and proportion of recently opened accounts and recent credit inquiries. Time since account openings and credit inquiries. Is this a re-establishment of positive credit history following past payment problems?
• Types of Credit Used–10% Number of and recent information on all the various types of accounts you use — credit cards, retail accounts, installment loans, mortgages, consumer finance accounts, etc.
Want to find out your FICO score? Each year, you’re entitled to a free credit report from each of the three major credit reporting companies – Experian,
Equifax, and TransUnion. When you get your report, be sure to look at it closely, since incorrect information can hurt your score. If you find inaccuracies, you can dispute the information directly with the credit bureaus.
Because your FICO score can determine whether you qualify for a mortgage and the rate you’ll pay, it’s smart to improve your score. Here are some ways to do it:
1. Reduce your credit balances to below 50% of your credit limit.
2. Bring any past due accounts up to current status.
3. Ask the credit bureaus to remove any incorrect information from your report
4. Apply for new lines of credit cautiously to minimize new inquiries on your report.
Please contact us about these topics or any other questions about your home financing.