Good FICO
Scores = Best Loan Rates
FICO scores (credit score) are what the vast majority of American mortgage
lenders use to evaluate home loan applicants' creditworthiness. The scores
are based on a number of factors that analyze the electronic credit files
maintained on virtually all adults in the U.S.
The scores
range from the 300s to around 850, with higher scores indicating lower
risk. Many lenders reserve their most favorable quotes of rates and fees
for applicants in the upper FICO score ranges, 700 and above. Mortgage
applicants in the low 600s and below get progressively higher rate quotes
and are charged higher loan fees.
Your FICO
score only looks at information in your credit report. However, lenders
look at many things when making a credit decision including your income,
how long you have worked at your present job and the kind of credit you
are requesting. Your score considers both positive and negative
information in your credit report. Late payments will lower your score,
but establishing or re-establishing a good track record of making payments
on time will raise your score. We can help you
with your home search.
Your Score
Takes into Account:
- Payment information on many types of accounts, including credit cards,
retail accounts, car and mortgage loans.
- Public record and collection items such as bankruptcies, foreclosures,
suits, wage attachments, liens and judgments.
- Details on late or missed payments ("delinquencies") specifically, how
late they were, how much was owed, how recently they occurred and how many
there are.
- How many accounts show no late payments.
- Length of Credit History
How Scores
are Established
Approximately 15% of your score is based on your credit history. Generally
a longer credit history will increase your score. The score considers both
the age of your oldest account and an average age of all your accounts.
10% of your
score is based on new credit or if you are taking on new debt. Opening a
couple of new credit lines in a short period will hurt this score. If you
are planning on buying real estate in the near future, put off buying a
car until after it closes. A new car loan can have a big impact on what
price of house you can qualify for.
10% of your
score is based on types of credit in use. The score will consider your mix
of credit cards, retail accounts, installment loans, finance company
accounts and mortgage loans.
30% of your
score is based on amounts owned on all accounts.
Even if you pay off your credit cards in full every month, your credit
report may show a balance on those cards. The total balance on your last
statement is generally the amount that will show in your credit report.
The score considers the amount you owe on specific types of accounts, such
as credit cards and installment loans. Small balances without missing a
payment shows that you have managed credit responsibly, and may be
slightly better than no balance at all. Closing unused credit accounts
that show zero balances and that are in good standing will not generally
raise your score. A large number of accounts can indicate higher risk of
over-extension.
35% is based
on payment history. The first thing any lender would want to know is
whether you have paid past credit accounts on time. This is also one of
the most important factors though late payments are not an automatic
"score-killer." An overall good credit picture can outweigh one or two
instances of, say, late credit card payments. We
can help you with your home search.
