Home Mortgage-FICO-What Exactly Is It? ( Part 1)
There are very few things you can do before applying for a mortgage loan that are more important than knowing your FICO score. Fair Isaac & Company- the heart of FICO is the score that greatly determines your interest rate on any loan-car, furniture, home equity, and of course on credit cards. It can even determine IF you get the loan.
A FICO score is a composite of many historical factors (as many as 22) used by millions of people to create a single score that is used by virtually all lenders to predict future behavior. Among the factors are:
• Late payments
• The amount of time credit has been established
• The amount of credit used versus the amount of credit available
• Length of time at present residence
• Employment history
• Negative credit information such as bankruptcies, charge-offs, collections, etc.
The biggest credit reporting agencies of Experian, Equifax, and Trans Union put the major factors of the FICO score into five categories. Some lenders use one of these figures others use the mid score of the big three.
Here are the major components of the FICO score. No secrets here!
PAYMENT HISTORY-35%. Do you pay your bills on time? Lenders are looking for trends so one late payment will not hurt. Conversely one on time payment with the rest being late will not help.
LENGTH OF PAYMENT HISTORY-15%. In general, a longer credit history increases your score. Considerations are;
• How long your credit accounts have been established. The score considers an average age of all your accounts.
• Frequency of use.
TYPES OF CREDIT USED-10%.
The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.
• What kinds of credit accounts you have.
• How many of each kind of account do you have?
TO BE CONTINUED IN PART 2
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