If you have ever tried to get a mortgage loan, you have probably heard the word "FICO." Even if you've never heard of it, you can be sure that it is used every time you apply for a mortgage loan. It can affect whether your loan application is approved or not, and it can also affect how much interest you pay.
What is FICO, then?
Credit scores are another name for FICO. It is a computer programme that Fair Isaac Corporation (FICO) made to figure out credit scores. Think of it as your personal financial report card, but one that a lending institution or company has graded.
A credit score will be given to you after they look at your credit history. After that, it is put into a computer. The FICO model is used by most of the big credit reporting companies, like Equifax and Trans Union. Then, mortgage lenders look at your credit score to decide if they will give you a loan and how much interest you will pay.
You should know that not every credit reporting company uses the same software, so your FICO score may be different at each one.
So, what factors go into figuring out your FICO score?
Your credit score is based on a lot of different things. Some examples are the amount you owe, the types of credit you have, and your payment history. I'll try to break down the factors by percentage, but keep in mind that this is just a guess because not all credit companies use the same percentages.
- History of payments
Your payment history can account for as much as 35% of your FICO score. Your credit score will go down if you haven't paid back loans or credit cards on time or if you've been late for a long time.
- Ratio of debt to income
This makes up 30% of the total. Your FICO score in this area is based on how much you owe and how much money you make. The less likely it is that your mortgage loan will be approved, the more you owe and the less money you make.
- The length of time
This makes up 15% of the total. The length of time your accounts have been open and how often you use them will be looked at by mortgage companies. So, your chances of getting a high score in this area go up the longer and better your credit history is.
Other things that affect your FICO score are the number and types of accounts you have, the balances on your credit cards, the number of credit cards you have, and so on.
As you can see, the best way to raise your FICO score is to learn how to handle your money well. Make sure to pay your credit card bills and loans on time and to keep your credit card balances low. Of course, it takes time.
