FICO stands for Fair Isaac Company, the originator of the credit
score, and have since become a generic term for any score used
by any credit bureau. Credit scoring reduces the cost of examining
a credit report and speeds mortgage loan approvals. All loan applications
take into account your credit score found in your credit report.
The higher the FICO score, the less of a credit risk you are
to a lender. Scores can range from 300 to 900 with 620 generally
being the "magic number". Credit scores lower than 620
are generally regarded by lenders as a higher credit risk.
Your score reflects information about how you have handled debt
and credit in the past as well as current account information.
It is not determined by race, religion, gender, marital
status, criminal record, age, or where you live. It is
determined by summarizing a number of factors including:
Payment History
How you have paid your bills in the past gives the lender an
indication of how you may be expected to pay them in the future.
Late payments as well as timely payments play a large role in
determining your credit score. A "willingness to pay"
is important, thus late payments in the same time period are better
than random late payments since the former usually signals an
effort to pay even after falling behind. Other considerations
are the length of time bills were delinquent and how recent the
last late payments were made.
Outstanding Debt
Lenders want to know how much credit you have and how much you
have used. They take into account how many consumer loans are
outstanding and current balances. In other words, the number of
credit accounts and how much of your available credit is used
are key factors lenders look at.
Credit History
Generally, the longer you have had credit and have managed debt
successfully the better your chances of qualifying for a loan.
If you have only recently opened a credit account or have only
a few credit references, our mortgage representative can work
with you to establish a "non-traditional" credit history
based on payment of other types of debt such as:
- rental references from landlord/property manager
- telephone, gas and electric bills
- monthly or quarterly insurance premium payments
Such alternative forms of credit should have at least a 12-month
history. Documentation can include cancelled checks or bills marked
"paid".
Credit Inquiries
An inquiry is a listing of the name of a credit grantor, or authorized
user who has accessed your credit file and is recorded every time
you apply for credit such as a car loan or opening a new charge
account. This, however, does not include marketing inquiries such
as when you receive an offer in the mail from a bank promising
"pre-approval" for a credit card. Nor does it include
auto or mortgage loan inquiries occurring in the 30-day period
prior to the score being calculated. Auto or mortgage inquiries
made within a 14-day period are considered one inquiry, since
it is assumed the buyer is simply shopping for the best deal.
The borrower need not fear rejection by a cold, calculating computer.
While credit scores are used as an objective and consistent measure
of credit risk, they are simply tools that help the lender evaluate
your credit history and financial situation. In the end, the final
decision to approve or deny your mortgage loan application lies
with the lender, not a computer.
