Special offer

What Is A FICO Score - And How Does It Help Me Buy A Home?

By
Real Estate Broker/Owner with Connect Real Estate - REALTOR / BROKER DRE # 01427063

Many times I get this question from the Home Buyers I help, "What Is A FICO Score?"  Good question...! 

Generally, a FICO Score is the middle score of the 3 Credit Scores (there are 3 main Credit Bureaus), which judge a person's ability to repay debts, and is therefore important in obtaining a home loan. 

Q:  So... What is a FICO® Score?

A...  A FICO® score is a number representing the creditworthiness of a  person or the likelihood that person will pay his or her debts. The three credit reporting agencies, Equifax, Experian, and TransUnion, collect data about consumers in order to compile credit reports. The credit agencies use FICO® software to generate FICO® scores, which are then sold to lenders. Actually FICO® is just one of the several credit scoring systems available. The Fair Isaac Corporation (known as FICO®) created the first credit scoring system in 1958.  Others are NextGen, VantageScore, and the CE Score.  They all evaluate the creditworthiness of a borrower.  However, FICO appears to be the most-used credit scoring system.  A FICO® score is between 300 and 850.  The higher the better the credit.

Q:  Why Do I have 3 different Credit Scores?

A: Everyone has three credit scores at any given time, because the three credit agencies have their own seperate databases.  They each gather reports from different creditors, and they receive information from those different creditors at different times.

Q:  What factors determine my FICO® score?

A:  Credit scores are designed to measure the risk of default (risk that a consumer will not pay their debts), by taking into account various factors in a person's financial history. Although the exact formulas for calculating credit scores are not disclosed by the Credit Bureaus, FICO® has disclosed the following components:

35% - Payment History- Late payments on bills, such as a mortgage, credit card or automobile loan, can cause a consumer's FICO® score to drop. Paying bills as agreed over time will improve a consumer's FICO® score.

30% - Credit Utilization- The ratio of current revolving debt (such as credit card balances) to the total available revolving credit (credit limits). Consumers can improve their FICO® scores by paying off debt and lowering their utilization ratio. The closing of existing revolving accounts will typically adversely affect this ratio and therefore have a negative impact on the FICO® score.

15% - Length of Credit History- As a consumer's credit history ages, assuming the consumer pays his or her bills, it can have a positive impact on the FICO® score.

10% - Types of Credit Used (installment, revolving, consumer finance) - Consumers can benefit by having a history of managing different types of credit.

10% - Recent search for credit and/or amount of credit obtained recently- Multiple credit inquiries for a consumer seeking to open new credit, such as credit cards, retail store accounts, and personal loans, can hurt an individual's score. Applying for lots of new credit in a short period of time is also viewed as risky and can cause a drop in an individual's score. However, individuals shopping for a mortgage or auto loan over a short period will likely not experience a decrease in their scores as a result of these types of inquiries.

 

So as you might imagine, the higher your FICO Score, the better loan rate you will be offered, and the easier it is to get a loan.  Lending institutions like borrowers with good credit.  However, if you do not have good credit - there is hope.  With the current climate of the market, and the vast amount of homeowners who short-saled or lost their homes to foreclosure, there are non-conventional lenders surfacing, who are willing to lend money for home loans at higher interest rates, still making home purchase possible.

Source: www.car.org

For more information about buying a home in Ventura, Ojai, Oak View, Camarillo, Oxnard or Thousand Oaks - email or call me so we can pick a time to talk more.

 

Posted by

Connecting Ventura County's Best Home Sellers and Home Buyers...!

 

Temple Schneider Callahan, RE BROKER

Certified Short Sale Specialist

Connect Real Estate Services

BRE: 01427063

Ventura, CA

email: Temple@ConnectRES.com

www.ConnectRES.com

www.YouTubeChannel.us

www.FaceBook.com/Temple.SchneiderCallahan

Direct: 805-208-6024

 

Comments (0)