What is a FICO Score and What Does it Mean for my Mortgage Potential?

What is a FICO Score and What Does it Mean for my Mortgage Potential?

A FICO score, even if you don't really understand it, is really important when it comes to your credit and whether or not you can get a loan. Because of that, you need to learn whatever you can about it so you can make the necessary changes (if needed) to get the things that you want and need.

What is a FICO score?

FICO, short for the Fair Isaac Corporation, debuted FICO scores as a standard to determine creditworthiness. These scores were made because there used to be many different scores, making it hard to determine how creditworthy someone is.

Your score is a three-digit number that helps to determine how likely you are to repay your loan. Both creditors and lenders will use this to determine whether or not you will qualify for a loan (or any type of credit card).

 

How is a FICO score calculated?

Your FICO score uses different categories to come up with your final score. These include:

  • Payment history (35%). Lenders and mortgage companies need to know that you are going to pay them back when you say you will.
  • Amounts owed (30%). They also want to see how much you owe to others. They like seeing a healthy debt, but if you don't have much credit left, they may see you as risky because you are overextended.
  • Length of credit history (15%). They are looking to see how long you have had credit with different accounts and how often you use them.
  • Credit mix (10%). Your score depends on how many different types of accounts you may have, including your mortgage, credit cards, cards with different stores, loans, and much more to see where you are spending your money.
  • New credit (10%). Your FICO score also takes in affect how much credit is new. You don't want to open multiple accounts in a short amount of time because that could really throw your credit score.

 

How can you check your FICO score?

Because your credit score can really affect your ability to get a loan, it is a good idea to monitor yours closely. However, that can affect your credit score so it is important to look at them regularly but not too much.

The best way to look at your FICO score is by using the Discover Credit Scorecard. You can use this, for free, whether or not you are a Discover cardholder. Many other credit cards, such as American Express, Citibank, Bank of America, and also offer a way for you to keep an eye on your credit scores.

 

How is your FICO score determined?

Your scores are influenced by your credit information so there are ways to improve your score. These include:

  • Paying your bills on time
  • Decreasing the amount of debt that you have
  • Making smart credit choices

 

What impact does it have on possibly landing a mortgage or other loan?

Your FICO score has a lot of impact on a mortgage or any other loan. These include:

  • It will determine how much money you will be able to borrow (if any at all).
  • How long you will be allowed to borrow the money for.
  • What your interest rate will be.

Even if you are able to get a loan, if your credit score is low, you may have to pay a higher interest rate in less time, making the loan too expensive for you to afford. Because of that, you really need to keep an eye on your scores and be careful with your credit so that you can get the loan that you need (at a price that you can afford) when you really need it!


Contact us for all of your mortgage loan needs. We will be glad to help you figure out what your FICO score is and how you can improve it (if you need to). 

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