FICO and Buying Your New Home

If you have been considering buying a new home, you have probably heard the term FICO. What is FICO? And how does it affect your home buying power?

Basically, FICO scores are your credit rating. Most lenders base your approval on these scores. Each credit bureau has a FICO score, so you have three FICO scores.

Your FICO score is a number based on the information contained in your credit file. This number indicates how likely you are to pay a loan back on time. If you have a high score, you are a smaller risk to the lender. Your FICO score helps determine whether you qualify for a loan and what interest rate you will pay. As your FICO scores improve, you pay less when you buy on credit.

What’s in Your FICO Score?

It is important to know what information a FICO score contains so you can improve your credit health and build a better score.

Your Payment History – 35% of total score

Your account payment information, presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.); collection items, and/or delinquency (past due items); the severity of the delinquency; the amount past due on delinquent accounts; the time since past due items, adverse public records, or collection items; the number of past due items on file; the number of accounts paid as agreed; and amounts owed are listed in this category.

Amount owing on accounts – 30% of total score The amount owing on specific types of accounts; the lack of a specific type of balance; the number of accounts with balances; the proportion of credit lines used; and the proportion of installment loan amounts still owing are all part of this category.

Length of Credit History – 15% of total score

The time since accounts were opened and the time since account activity are listed in this category.

New Credit – 10% of total score

The number of recently opened accounts, and proportion of accounts that are recently opened; the number of recent credit inquiries; the time since recent account opening(s); the time since credit inquiry(s); and the re-establishment of positive credit history following past payment problems are part of this category.

Types of Credit Used – 10% of total score

The number of various types of accounts make up this category.

Please note that:

No one piece of information or factor alone determines your score. The importance of any factor depends on the overall information in your credit report.

Your FICO score only looks at information in your credit report. However, lenders look at a variety of things including income, length at your present job and the kind of credit you request. Your total FICO score is based on both positive and negative information presented.

What’s Not in Your Score

Your credit file contains information that does not reflect on your credit worthiness. They do not consider your race, color, religion, national origin, sex and marital status. US law prohibits credit scoring from these facts, as well as receipt of public assistance. It does not consider your age, your salary, occupation, title, employer, date employed, employment history or where you live. Any items reported as child/family support obligations or rental agreements are also not included.