Pamplin Media Group – How is a FICO credit score calculated?
This article is brought to you courtesy of Robert Grove, Senior Mortgage Broker at News-Times Insider Mortgage Expert Minuteman Mortgage.
When it comes to buying a home or any type of consumer product that requires financing, a credit report is compiled to verify the consumer’s creditworthiness. Mortgage lenders use the lowest average FICO score for the loan. Why is this score important? Lenders want assurance that their loan will be repaid. High FICO scores prove that the consumer has reliably repaid past debts and has a long history of doing so.
The typical credit score range is between 350 and 850, where 850 is a perfect score, excellent between 750 and 850, good 700-749, average 650-699, and bad 650 or less. Interest rates are based on credit ratings. The better the score, the lower the rate.
Scores are calculated by Experian, TransUnion and Equifax. Their scores are roughly similar but drawn from different sources. Here are the main variables used to calculate a FICO credit score.
Payment history 35%, use of debt to credit 30%, length of credit history 15%, credit mix 10% and new credit accounts 10%. A payment delay of 30 days can drop your score by 90 to 110 points. Having a balance above 30% of your line of credit can lower scores. Closing a credit card you‘ve had for years lowers scores since the history is erased. Scores work with a great combination of home and auto loans and credit cards. Opening several new credit accounts decreases the length of your credit history.
To see where you stand, get your free report at AnnualCreditReport.com.
Robert Groves, Senior Mortgage Broker
5635 NE Elam Young Parkway, Suite 308
Hillsboro, OR 97124