All About FICO
A FICO score is a credit score representing your credit history.
It is a numeric score ranging from about 300 to 850. The median
score in the U.S. is approximately 725. A FICO score above 720
is deemed to be "good credit" while a score under 600 is
considered poor.
Your FICO score is important for a number of reasons, one of
which is that this score will be sent to lenders by credit
reporting companies. Lenders review this information to
determine whether or not you would be a good candidate for a
home loan. It helps them to predict if you are likely to be able
to repay the mortgage according to the terms of the loan.
FICO is an acronym for Fair Isaac Corporation, who created the
mathematical formula used to find this credit score. There are
three other similar variations on this score used by other
credit reporting agencies. Beacon by Equifax, Empirica by Trans
Union, and Fair Isaac Risk Score at Experian. All of these
scores are developed by Fair Isaac Corp., but are slightly
different. Fair Isaac also offers modified versions of their
FICO score, two of which are the "Classic" FICO and the "Next
Gen" FICO.
The factors that Fair Isaac takes into account when calculating
your FICO score include (in order of weight) the punctuality of
your payments in the past, capacity used, length of credit
history, types of credit used, and any recent search for
additional credit or recently obtained credit. Capacity used
refers to the ratio of current revolving debt (credit card
balances) to total available revolving credit (credit limits).
You can view your own FICO scores online at sites such as
http://www.myfico.com for a charge of about $45 to see scores
from all three major agencies. Lenders will pay less than this
to obtain the same information.
A low FICO score can either prevent you from getting credit or
can get you credit at a higher rate of interest.
If you want to improve your credit score you have a variety of
options available to you. Credit counseling organizations are
oftentimes free of charge and offer legal and helpful advice on
how to better manage your money and debt. The harder road to
take would be to improve your FICO score by taking the logical
and necessary steps towards that end. This might include
checking your credit history for accuracy (you can get a free
credit report once a year at http://www.annualcreditreport.com),
paying your bills on time, and decreasing your credit capacity.
Lenders will also take a look at your income, the appraised
value of your home, and any other debt obligations you currently
have to determine if you are a good candidate for a loan.
Mortgage