FICO scores (credit score) are what the vast majority
of American mortgage lenders use to evaluate home loan
applicants' creditworthiness. The scores are based on
a number of factors that analyze the electronic credit
files maintained on virtually all adults in the U.S.
The scores range from the 300s to around 850, with
higher scores indicating lower risk. Many lenders
reserve their most favorable quotes of rates and fees
for applicants in the upper FICO score ranges, 700 and
above.
Mortgage applicants in the low 600s and below get
progressively higher rate quotes and are charged
higher loan fees.
Your FICO score only looks at information in your
credit report. However, lenders look at many things
when making a credit decision including your income,
how long you have worked at your present job and the
kind of credit you are requesting. Your score
considers both positive and negative information in
your credit report. Late payments will lower your
score, but establishing or re-establishing a good
track record of making payments on time will raise
your score.
Your Score Takes into Account:
Payment information on many types of accounts,
including credit cards, retail accounts, car and
mortgage loans.
Public record and collection items such as
bankruptcies, foreclosures, suits, wage attachments,
liens and judgments.
Details on late or missed payments
("delinquencies") specifically, how late
they were, how much was owed, how recently they
occurred and how many there are.
How many accounts show no late payments.
Length of Credit History
How Scores are Established
Approximately 15% of your score is based on your
credit history. Generally a longer credit history will
increase your score. The score considers both the age
of your oldest account and an average age of all your
accounts.
10% of your score is based on new credit or if you
are taking on new debt. Opening a couple of new credit
lines in a short period will hurt this score. If you
are planning on buying real estate in the near future,
put off buying a car until after it closes. A new car
loan can have a big impact on what price of house you
can qualify for.
10% of your score is based on types of credit in
use. The score will consider your mix of credit cards,
retail accounts, installment loans, finance company
accounts and mortgage loans.
30% of your score is based on amounts owned on all
accounts.
Even if you pay off your credit cards in full every
month, your credit report may show a balance on those
cards. The total balance on your last statement is
generally the amount that will show in your credit
report.
The score considers the amount you owe on specific
types of accounts, such as credit cards and
installment loans.
Small balances without missing a payment shows that
you have managed credit responsibly, and may be
slightly better than no balance at all. Closing unused
credit accounts that show zero balances and that are
in good standing will not generally raise your score.
A large number of accounts can indicate higher risk of
over-extension.
35% is based on payment history. The first thing
any lender would want to know is whether you have paid
past credit accounts on time. This is also one of the
most important factors though late payments are not an
automatic "score-killer." An overall good
credit picture can outweigh one or two instances of,
say, late credit card payments.
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