Because lenders check your FICO score when you apply for any type of major credit. Knowing your score puts you a step ahead in the mortgage process. Find out how scoring works and how to improve your score from Fair,Isaac, the developers of the FICO score.
What is my FICO score?
FICO stands for Fair,Isaac & Company and is the name for the most well known credit scoring system. Your complete credit profile is reviewed and assigned a score, which is used to estimate credit worthiness. The higher your score, the more credit worthy you are assumed to be.
How is my score determined?
Your FICO score is comprised of 5 main components:
1) Your past payment history is around 35% of the score. The fewer late payments you have, the better. Recent late payments will have more negative impact than credit problems in the past.
2) Your everyday credit use constitutes about 30% of your score. Lower balances on credit cards is better than higher balances closer to your credit limit.
3) The length of your credit history is about 15% of your score. The longer your credit has been established, the better. Opening new accounts and closing proven accounts can bring down your score.
4) The types of credit you have is about 10% of the score. The stricter the credit requirements of your lending institution, the better.
5) Credit inquiries make up about 10% of your score. Multiple inquiries can be seen as a negative if several credit cards are applied for at one time, especially if other accounts are close to their credit limit. Several inquiries within a 14 day period for a specific loan are only counted as one inquiry, however.
How can I improve my score?
Your score can only be changed by the way that payments are reported directly to the 3 major credit bureaus. Confirmation from the creditor in writing is required. It is best review your credit before you look for a home. This way you can make corrections and be sure your loan is based on the most accurate information.