| Do you understand your FICO score? When your | | | | 640. A FICO score of 680 or higher is considered high. |
| credit history is reported it is shown as a three-digit | | | | This translates into low risk for the lender and lower |
| number. Its important that you know what that number | | | | costs for you. |
| is, particularly if you plan to use credit to make | | | | Each reporting agency provides up to four reason |
| purchases. This three-digit number is known as a FICO | | | | codes when they post FICO scores. This helps the |
| score. FICO stands for the Fair Isaac and Company | | | | consumer understand why they received a low score |
| which began credit scoring sometime in the 1950s. | | | | on their credit report. The reason codes are the main |
| Their strategy was to use 30 different factors to | | | | factors that contribute to the consumers score. If you |
| determine risk. The three major credit bureaus, Trans | | | | address these factors, your FICO score may be |
| Union, Experian and Equifax, use FICO scores when | | | | affected in a more positive way. The following is a list |
| making credit reports. | | | | of factors that impact your FICO score: |
| This method of scoring is used to assess the possibility | | | | 1. Numerous accounts opened within the last twelve |
| of your loan defaulting. The credit card and installment | | | | months. |
| loan industry have used this method for a number of | | | | 2. No current credit card balance. |
| years. The mortgage industry is using this scoring | | | | 3. Short credit history. |
| system as well. A credit score will help lenders simplify | | | | 4. Delinquencies |
| underwriting by categorizing borrowers more quickly. If | | | | 5. Credit card balances near their maximum. |
| you have a high credit score your application will | | | | 6. Tax liens, judgments or bankruptcies. |
| probably get a superficial but positive review. Wherein, | | | | 7. Excessive credit inquiries. |
| a low credit score may get a quick review and a quick | | | | 8. Not enough revolving credit accounts. |
| denial. | | | | Remember, FICO scores are only guidelines. Factors |
| Credit scores fall between 300 and 900. Most | | | | other than FICO scoring can impact underwriting |
| consumers score between 500 and 800. A score in | | | | decisions. The following examples of compensation |
| the 500s is very low. This indicates to the lender that | | | | factors may help a lender to be more lenient: |
| the borrower is a high risk. A score in the 600s is | | | | 1. A larger down payment. |
| medium. In this case your payment history will be | | | | 2. Low debt-to-income ratio. |
| closely examined. More than likely, written explanations | | | | 3. Excellent history of saving money. |
| will be required to explain your derogatory credit | | | | 4. Previous paid loan with current lender. |
| before you are issued new credit. Some lenders will | | | | 5. Available home equity or collateral. |
| not extend credit to consumers with a score less than | | | | |