The FICO mortgage score is the number that represents an individual's creditworthiness. Lenders look at this number to determine how likely you are to pay back your debts. Your credit score will ultimately what house you can buy, because it will determine how much the bank will lend to you to buy a house.
The FICO Score is used by the vast majority of lenders. Understand the make up, the components that increase or decrease your credit score, a few changes can drastically improve your score.
FICO Score is very important to secure the best loan available
The largest contributing factor is your payment history. Payment history determines 35% of a FICO Score, or credit score. This section takes into consideration all late and on time payments and where all derogatory items are found. Another way to put it, this section is looking for the presence or lack of derogatory information. Items such as bankruptcy, liens, judgements, settlements, charge offs, repossessions, foreclosures, and late payments can cause your score to drop.
Late payments are the most common issue. TIP: Set up all your credit cards minimum payments to be paid automatically. Of course, its best to pay your credit card off in full every statement, however, this default setting will ensure you never make a late payment, increasing or preserving your credit score and avoiding late fees in the process!
We are often asked What is a Good Credit Score? The answer is... It depends. Depends on market conditions primarily and also other contributing factors. Talk with your Mortgage Lender for more details as the market and loan conditions are in a constant state of flux.
This is the second largest contributing factor, also known as Debt Burden. Amounts Owed determines 30% of your credit score. In plain English, amounts owed is how much debt you are in compared to how much credit you have available. There are actually different metrics in the debt burden section:
- Debt to limit ratio
- Number of accounts with balances
- Amounts owed across different types of accounts
- The amount paid down on installment loans
Time in File
The remaining 3 items are the smaller contributing factors; Time in File also known as Length of Credit History makes up 15% of the credit score. This is the average age of the accounts on your credit report and the age of the oldest account.
Types of Credit
Types of credit makes up 10% of your credit score. This is an analysis of having different types of credit, including installment, revolving, consumer finance and a mortgage. Yes, in many cases, having a mortgage will actually improve your credit score! Of course, you need to talk with a licensed financial advisor or mortgage advisor to evaluate your specific situation and goals.
The final 10% is Recent Searches for Credit, or Hard Credit Inquiries. A 'Hard Pull' is when a lender, credit card or loan officer pulls your credit report. Every hard pull is recorded and pulling multiple reports can lower your credit score. The opposite, 'Soft Pull' do not appear on credit reports and are not recorded, so do not influence your credit score. A Soft Pull is generally preferable to a Hard Pull if you can help it. Soft pulls are used to determine if you are Pre-Qualified for a mortgage; If you are, the mortgage broker will advise you to move forward with the Hard Pull and gain the Pre-Approval.