When buying a home in Massachusetts, you want to avoid any surprises when it comes to your credit score.
Even if you are convinced that your credit is unblemished you can't leave this up to chance when you are embarking on a home purchase.
What is a FICO Score?
Most credit bureau scores in the U.S. are produced from software developed by Fair Isaac Corporation (FICO). The scores are used to evaluate how much of a credit risk a potential borrower is.
These scores are considered to be a fair and impartial judgment of whom should be granted credit and what the limits should be. FICO cannot tell if you are a single woman, a minority race or of any particular religion. It looks only to your borrowing habits measured against the patterns of hundreds of thousands of past credit reports.
FICO scores range from 300 to 850 and, though your scores among the three major credit bureaus will not be far apart, they are never identical to each other. Each agency has its own method of analyzing and reporting the data in your files. It is wise to get a copy of each score since that is exactly what some of the lenders do.
As a Home Buyer it's important to note that FICO only looks at information in your credit report, while lenders look at a number of variables when making their lending decisions, including your income and how long you have worked at your current job. Your score considers both positive and negative information in your report. Late payments will lower your score and a history of making payments on time will make your score higher.
Your FICO score is based on five categories:
- Payment History - This makes up 35% of your score. Have you paid your bills on time?
- Amounts Owed - Approximately 30% of your score is based on this factor. Having high balances on credit card accounts may show that you are overextended and less likely to make future payments on time. If you pay off your credit cards every month this indicates that you are a good credit risk.
- Length of Credit History - Approximately 15% of your score is based on this. Having had accounts for a longer period of time is viewed as more favorable than being a new credit customer.
- New Credit - This accounts for approximately 10% of your score. People who have not had credit for very long should not open too many new accounts in a short amount of time.
- Types of Credit in Use - Approximately 10% of your score is based on this factor. If you do not have a lot of other information on which to base your score, opening a vast array of retail accounts, loans, and credit cards will not necessarily be viewed favorably.
What is Considered a Good FICO Score?
To get the best interest rates on your home mortgage, FICO Scores break down as follows:
- 760-850 - Excellent
- 700-759 - Very Good
- 660-699 - Good
- 620-659 - Not Good
- 580-619 - Poor
- 500-579 - Very Poor
So, if you are getting ready to buy a home look up your FICO score and be that much ahead of the game.
Copyright 2010 - Claudette Millette, Broker, Owner, The Buyers' Counsel - (508) 881-6230
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