What is a FICO ?

 Your Credit Score is Very important when you are looking to buy a home. Your credit score is the first thing that mortgage lenders will look at when you apply for a home mortgage loan.

     Credit scores are used by lenders as a model to help them determine the likelihood that you, the borrower will make timely and consistent payments. This model was developed by the Fair, Isaac and Company through the analysis of millions of borrowers credit histories. The model commonly known as a "FICO Score" has shown that only one in one hundred borrowers with FICO Scores above 660 fell behind in their payments, while more than one in three borrowers with FICO Scores below 620 were 60 days or later on their mortgage payments.

     The majority of borrowers today fall somewhere in the middle of the examples. With more people than ever taking advantage of lower down payments, it has become imperative for lenders to use tools such as the FICO Scores to make good underwriting decisions, while approving as many people as possible. What determines your FICO Score has been a mystery to most until now.

     Fair, Isaac and Company has been taking strides to shed some light on what determines your FICO Score. We have some of those answers for you here.

     35% of your score is determined by the payment history of your credit accounts. This would include major credit cards, department store credit cards, car loans and other installment loans.

     30% of your score is based on the amounts you currently owe to creditors. This statistical model sometimes gives a slightly higher score to people who show an un-paid balance on a credit card or two, but with no late payments, than it would with those who run no balance at all.

    Another 15% of the total score is based on the length of time you have been a credit user, meaning the longer you have been paying bills on-time, the better.

     Approximately 10% of your score is based on weather it appears as if you are loading-up on additional credit. For example: have you applied for, and received new loans or lines of credit in the recent past. The more you have done so, the lower your FICO Score will be.

          Finally, around 10% of your score is based on the Type of credit you have. For example, if you have a loan from a finance company, with their typically higher rates, might be seen as riskier to pay back for the borrower than a home equity loan from a mortgage lender.