Understanding your FICO score
If you are looking forward to becoming a homeowner, you must evaluate your financing options. You may consider applying for a mortgage although your credit score must be good. Most debtors always evaluate your potential as a client by referring to your credit scores. In this context we will now discuss about FICO scores and the reader will get a better understanding of this type of credit score.
What are FICO Scores?
FICO scores are in the form of three-digit numbers, and they always range from 300 to 850. The scores are always determined by your credit reports or any of the reports issued by the credit reporting bureaus since they will offer details on a person’s credit activity. After evaluating your credit score, a creditor can get a better understanding of whether a person is likely to pay their debt or not. FICO was the first credit risk score to be invented. The Fair Isaac Corporation developed this type of credit score, and it has been in use since 1981. The organization has gained fame over the years as a reputable credit-scoring company.
Most lenders and creditors always make use of the FICO scores. If you have a high FICO score, you have a high likelihood of being issued a loan by most creditors. If you have a low FICO score and you are looking for a mortgage as a home buyer, you will be denied access to the home loan. On the other hand, you can be given the loan, but the terms of payment among other things will not be as favorable.
After gaining a better understanding of FICO scores, your home loan application may be approved. You need to ensure that your credit scores are high. The creditor may also issue you lenient and favorable payment terms and options. Since FICO scores are evaluated in the form of numerals from 300 to 850, maintaining a high credit score ensures that even when a creditor sets a certain threshold, you will still meet it and get your home loan approved. You can liaise with the creditor and consult them about their threshold to determine whether you can be granted a home loan based on your current FICO score. Nevertheless, not many companies may be willing to share the information about their threshold.
How to understand/improve the FICO score for home loans.
When applying for a home loan, you must be knowledgeable about credit scores and how they may affect your ability to get access to a mortgage. You may consult a mortgage expert, and they may enlighten you more about credit scores and how they relate to mortgages. After getting to know more about how your credit scores are assessed, you may go ahead and apply for the mortgage. Additional knowledge about FICO scores comes in handy since they will determine whether your credit score is good or bad.
A creditor will use your FICO score to determine factors such as the interest rate that they will issue and this happens when you apply for a home loan. As a home buyer, you should be knowledgeable that a high FICO score ensures that you have a higher chance of being granted the home loan. If you do not know about your credit score, the mortgage lender can help you to access your credit report.
As for the FICO scores, you should know that they are evaluated as follows:
Payment history- 35%
Amounts owed- 30%
Length of credit history- 15%
New credit- 10%
Types of credit used- 10%
Most home buyers are also interested in knowing more about what is a good credit score. There might not be a definite answer about what figure determines a good credit score, but every home buyer should know that every lender has a different threshold. All you to do is to maintain a good credit score.
The following tips may guide you on how to improve your credit score:
• Always pay your lenders on time
If you pay your dues on time, your FICO scores will always be high. You should always keep a reminder about when each of your payments is due.
• Pay up your debts
If you owe any creditor, you should pay up since such a factor will improve your FICO score. IN an instance where you were paying up a credit card loan, you should not close the account, it may help to improve your FICO score. The presence of such an account is to ensure that creditors can access your credit history and evidence that you paid off your debts on time will prove to be beneficial.
