You and Your FICO Score Finance Articles | June 16
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Your ability to qualify for any kind of financing - from credit cards to auto loans to mortgages, depends greatly on credit scoring. Most creditors will draw your credit report to look at your FICO score.
The FICO score will be used to evaluate your qualification for a particular credit line or loan program and to calculate the applicable interest rate. Depending on their specific institutional needs, some lenders may use the highest FICO score or the middle score, or only one FICO credit score if the credit transaction is for a consumer purchase.
For instance, if you were to apply for a house credit card at a department store
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The system works differently for mortgage credit. Banks report to all three credit bureaus (Experian, Equifax and Trans Union)
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Cheap Nike Air Vapormax 2018 , a credit card, or a home mortgage, your FICO score makes up a significant portion of the decision-making process. The FICO score will determine the premium rates you pay for insurance and the interest rate available to you on a loan.
Your FICO score is usually a composite of the following:
35% of your FICO score is payment history, and the key items include frequency, severity
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30% of the FICO score is credit utilization, and estimates the balance of credit accounts in relation to the maximum credit available, with revolving credit lines (usually, credit card accounts) being the most significant;
15% of FICO scores cover credit history
Cheap Nike Air Max TN Womens , the number of years credit has been established (the longer, the better; and one trade credit line for 5 years will affect the FICO credit score better than 2 trade lines for 6 months);
10% of the FICO score involves type of credit, which will monitor the mix of revolving credit inquiries, but will not include inquiries with no finance rating (as an inquiry from your employer, for instance).
As mentioned earlier
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There are other types of FICO scores:
Application Risk Score ? In this set-up, the lender uses a scoring system that includes a FICO score but also considers information extracted directly from your credit application.
Customer Risk Score ? Also called ?behavior scores?; here
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The range on your FICO score is from 300 to above 850 and would suggest a credit profile as follows:
FICO score 720 and above: This is a very good FICO score, and it suggests that the risk of default on your credit is very low. If the lender should find any exceptions in your credit report, these will easily be waived and set aside; and if there are any weaknesses in underwriting your credit, your high FICO credit score favorably compensates for that weakness.
FICO score 660 to 719: This is also a good FICO score, and suggests that your risk of default is low. This FICO credit score indicates that your credit history is acceptable.
FICO score 620 to 659: This FICO credit score represents a degree of risk. You can qualify for 100% financing
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FICO Scores below 630:? Anything below 630 is a really bad FICO score. Your risk of default is very high, and you will need to present strong compensating factors to minimize credit risk before the underwriter would consider approving a loan. Some lenders may be willing to arrange 100% financing.
FICO score between 619 to 585: The underwriter can consider approving a loan but that depends on the credit issues, and may also consider an applicant with no previous delinquency and lack sufficient credit. Lenders are more likely to see mortgage delinquencies if they loan money to a consumer with a FICO score below 620.
FICO score between 584 to 500: You will have to explain your credit history in writing, and will need to pay off some of your debts and other payables; the underwriter may still consider you acceptable but the high risk factors should not be layered.
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