HOW IS YOUR CREDIT RATED? Understand Your FICO Score To Win The Mortgage Game
Credit scoring has been part of the loan underwriting process for over a decade now. Fair Isaac and Co. (FICO) developed the concept of credit scores and the formula used to determine them. Basically, the score is a snapshot of a person's credit picture at a particular point in time. FICO scores are used by U.S. lenders to make millions of credit decisions each year, including more than 75% of mortgage loan originations.
Here are the factors looked at in computing your credit score:
Payment history.
FICO first looks at how you pay off your debts. This information accounts for 35% of the credit score, including:
Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items).
Amount and severity of delinquency (how long past due).
Number of past-due items on file.
Number of accounts paid as agreed.
Amount of credit owing.
Outstanding debt is considered for about 30% of the credit:
Amount owing on specific types of accounts .
Number of accounts with balances
Proportion of credit lines used, as well as installment loan amounts (including proportion of balances to total credit limits on certain types of revolving accounts and proportion of balance to original loan amount on certain types of installment loans).
Length of time credit established.
How long you've actually had credit makes up about 15% of your credit score.
New credit.
This accounts for about 10% of your score:
Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account.
Number of recent credit inquiries.
Types of credit established.
Finally, FICO considers the type of credit you hold, which accounts for about 10% of your credit score. Number of (presence, prevalence, and recent information on) various types of accounts, including: