Miscellaneous

Buying A Home

Related Articles

Mortgage Strategies

Mortgage Or Rent

Obtaining A Mortgage

Credit History

Credit Report

Credit Score

Credit Reporting Agencies

Saving

FICO Score

A credit score is a tool lending companies and other businesses use to determine the level of risk of those who apply for credit with them. This, in turn, affects the limits on credit activities, approvals, the rate at which the companies charge borrowers interest, and could ultimately affect whether they get insurance or even a job. And the key to the whole thing is a three digit number called your credit score, or FICO score.

Your FICO score is a very important number determined by a combination of your credit history and general financial behavior. It lists all loans, credit (present and past), bad debt, payment history, and current lines of credit that are still open. It also shows how many years old your credit is, as well as the types, etc. All this data is turned into a number between 300 and 900, and gives a potential lender and idea of the risk of doing business with you.

This FICO system has been used for a number of years by the big credit reporting agencies—TransUnion, Experian, Equifax. Together, with help from Fair Isaac and Company, these bureaus developed the FICO system, although each agency has its version.

Did you know a potential employer may also use your credit score? An applicant with a good credit score is considered a better candidate for positions in security, for instance. In other cases, companies may use it to help them decide which candidate is generally less likely to break rules or become insubordinate. Also, those who can’t manage home finances are probably not as likely to be able to manage a department’s. But remember, potential employers may not access your credit score unless they have your permission in writing.

This score is important not only because it determines whether or not you get that loan, it also determines your interest rate. The less the lender’s risk of extending credit to you, the lower your rate. Fair Isaac says that a $300,000 30-year fixed rate mortgage for a borrower with a good FICO score (760 to 850) would pay a little over 5.6 percent interest. This borrower’s monthly payments will be around $1,700. The same mortgage for someone with a FICO score between 580 and 619 will pay a rate over 8.2 percent. This brings the monthly payment to over $2,200.