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How FICO scores affect you
Home Finance Mortgage & Debt
By: David A. Krebs Email Article
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Your FICO score is the first thing a lender looks at, when evaluating your loan application. In simple terminology, the FICO score a number that represents your credit history, specifically, how reliable you are with repaying debts. The score is used by financial institutions to estimate the total risk involved in lending to you. Borrowers with a high FICO score are less likely to default on a loan.

The FICO score gets its name from the Fair Isaac Corporation, itself popularly known as FICO, which developed the first credit scoring systems. FICO introduced their systems in 1958 and 1970, and they remain very popular among lenders today.

Because the score is intended as a complete snapshot of your credit-worthiness, the FICO score is determined by a wide variety of factors. The two biggest parts of the FICO score formula revolve around whether you make your payments on time, and whether you tend to keep your credit accounts "maxed out" or not. These two factors make up 65% of the total FICO formula. Other factors include:

* How many different kinds of credit you use - a variety of credit experience is a good thing.

* How long you've been using credit - a long history is good for your FICO score

* How much new credit you've applied for recently - the more applications for credit you've filled out lately, the higher your risk, and thus the lower your FICO score.

Your FICO score not only affects whether you'll be approved for a loan, but also the terms of the loan. When a consumer approaches a lender, they check the FICO score of the consumer first. Low FICO score means high interest rates and fewer "perks" in your loan's terms. Higher score means the lender will offer a better loan. If you want to finance a home, credit score, specifically FICO score, should be the first thing you look at, as well. With a bad FICO score, you'll be forced to accept whatever you're offered; with a better score, you have the power of comparison shopping.

Your FICO score is available to you, and you should obtain a recent report before you get serious about requesting a loan, be it a mortgage or any other. Most people will either visit their bank and request a credit report, or, even more often, they'll purchase their credit report online.

Keep in mind that FICO scoring formulae are intellectual property, and as such, they're not often shared between credit reporting companies. This means you may get slightly different FICO score results if you buy two or more credit reports. There are other factors that might affect how one particular company calculates your FICO score, so it's good to buy at least two - especially after you've done work to repair your credit, if necessary.

So, in conclusion: Your FICO score will make or break your ability to get a good loan, or any loan at all. You may get different credit scores from different banks and reporting agencies, and, your FICO score will change over time, as your credit habits change. If you plan to buy a house, have a clean record. If your credit history needs work, consider a credit repair service, but in any case, pay down your credit debts and try to keep a high available balance, rather than maxing out all your accounts. If you have a clean history, but you haven't used much credit, get one or two new credit accounts of different kinds, and use them, but not too much. All of this will improve your FICO score, and that will directly affect your ability to get a mortgage.

Krebs Financial (KF) is a full-service mortgage , credit repair, and loss mitigation company with over ten years of banking experience, handling a full spectrum of transactions from the simple to the most complex. KF can provide options and solutions to meet unique lending needs.

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