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Jefferson Park RE Trends: Credit Info

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What is a FICO score?

FICO stands for Fair Isaac Corporation, a company that created the most used credit scoring model in the United States.  An individual's credit score is calculated through a statistical algorithm and is used as a factor in determining the likelihood of a borrower defaulting on a loan.  FICO scores are generally used for obtaining mortgages, car loans or consumer credit.  The scores are provided from the three major credit reporting agencies: Equifax, Experian and Transunion.  Typically, there is a variance amongst the scores since each agency has a slightly different scoring formula.  FICO scores range from 300 - 850, with higher scores being considered less risky.  For mortgage lending purposes, any score over a 680 is considered good and above a 750 is considered excellent.  Any score below 580 is considered great risk and will be challenging for such a borrower to secure financing. 

The factors that contribute to a FICO score and the weighted percentages for each are as follows:

  • 35% - timeliness of payments (adverse dings to scores for any payment greater than 30 days later, collections, past due accounts)
  • 30% - the ratio of used debt to allowable debt for consumer credit (an individual that maxes out their credit cards will see a decrease in their score)
  • 15% - length of credit history (the more credit history and showing proof of consistent timely payment, the better the score)
  • 10% - types of credit used  (installment, revolving, mortgage)
  • 10% - recent credit inquiries and recent new credit (taking out a fair amount of new credit with multiple credit inquires can adversely impact a score)