Bad Credit Mortgage Site

ABOUT US | LINKS | GLOSSARY | SITE MAP

What is a FICO score?

Your FICO score, also called a credit score, is the method most often used by lenders to determine how credit worthy you are. Whether you're seeking a mortgage, car loan, or home-equity loan, you will be scored!

Fair, Isaac & Co. developed the “FICO” scoring model used by the three major credit bureaus: Equifax, Experian, and TransUnion. Your FICO score is calculated using a computer model that compares the information in your credit report to what's in the credit reports of millions of other customers.

A FICO score simply distills a borrower's credit history down to a single number. FICO scores range from about 375 to 900 and the higher the score, the lower the credit risk. A score of 670 or higher is generally considered a top score but different lenders accept different levels of risk. A credit score that one lender considers adequate may be viewed as unsatisfactory by other lenders for similar loans.

FICO scores often fluctuate slightly, even daily, since new information is added to each credit file frequently. Credit bureaus only calculate your score when a credit report is requested, so your score will be based on the information in your file at that particular credit bureau, at that particular time.

Although the exact method of calculating a FICO score is highly confidential, Fair, Isaac & Co. has indicated that their model uses five leading factors to evaluate your credit worthiness:

About 35 percent of your FICO score is based on your past payment history with respect to late payments, delinquencies and bankruptcies. The fewer the late payments, the better your score. Also, a recent late payment hurts your score more than one from five years ago.
About 30 percent of your FICO score is based on your outstanding debt, this includes how much you owe on credit cards and installment loans, compared against the original amounts of the loans. People that use a larger percentage of their available credit are a greater credit risk than people who use only a small percentage.
How long you've had credit accounts and how often you use them accounts for about 15 percent of your FICO score.
New applications for credit comprises about 10 percent of your FICO score. It has the most impact on people who do not have a long-established credit history.
Another 10 percent of your FICO score is derived from the types of credit you presently have, credit cards, installment loans or mortgage loans.

Other factors that influence your FICO score include how your income compares to your present level of debt, your employment history and how long you've lived at your current residence. U.S. law forbids personal information such as ethnicity, religion, sex or marital status from being reflected in your FICO score.

Over the long term you will improve your credit score by simply paying all of your bills on time, but it's difficult to improve your score significantly over the short term. One approach that CAN help is to carefully review all of the information in your credit report looking for errors. Information often gets reported to credit bureaus incorrectly or not at all and getting this information corrected will often improve your score. To learn more about the rules governing credit reporting, the Federal Trade Commission offers a copy of The Fair Credit Reporting Act.

Under the recently enacted Fair and Accurate Credit Transactions Act (FACT Act), consumers are entitled to a free credit report every twelve months from each of the three national credit reporting companies. For more information or to request your free credit reports, visit AnnualCreditReport.com. A credit score can be ordered with your free credit reports for a small fee.