Things to Know about a CREDIT SCORE - WHAT IS FICO?
In today's real estate climate, credit scores are more important than ever. They not only impact the cost of the credit you receive but may also impact whether you are even eligible for credit to begin with.
It is important to understand what makes up your credit score and what resources are available to help you monitor your credit. FICO® is the most common scoring model and is used in more than 90% of lending decisions. Your FICO Scores are calculated from different credit data in your credit report and can be grouped into five general categories.
- 35% - Payment History - Pay your bills on time! For every 30 days late, judgement, bankruptcy or collection may cause a significant drop in your credit score.
- 30% - Amounts Owed - This determines your available credit compared to the amount you owe.
- 15% - Length of Credit History - The longer your accounts are kept open, the more positive impact it will have on your credit score.
- 10% - New Credit - Having multiple reports pulled for your credit in a short amount of time can actually negatively impact your credit score.
- 10% - Types of Credit Used - Having a mix of credit, such as a few credit cards and a car loan exhibits to creditors you are experienced in borrowing money.
Most lenders will use a "Tri-Merge" credit report that simply takes the middle score from the three creditors - Experian, Transunion and Equifax. Not every creditor reports to the all three of the repositories so that is why you may have difference between the three scores, but in general they are usually very close.
Understanding your FICO scores is very important and should be an integral part of planning when looking at your mortgage options. A couple of points one way or the other could mean the difference of thousands of dollars in down payment and/or interest expense.