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Fico – Credit Scores

November 20th, 2007 by Shenron

If you have ever looked at your credit score or looked into what a credit score is you may have come across the term Fico. There are different ways or variants when it comes to credit score reporting. The Fair Isaac & Co developed Fico, which is used by a significant number of lenders, mainly mortgage lenders. It is used to determine the risk a potential borrower may pose when it comes to defaulting on the financial obligation of the mortgage. This serves as the primary consideration that potential lenders use when they look at the profiles of different consumers.

Fico scores can be exceptionally important when you start the process of getting financial assistance for the purchase of your home. It also is important for refinancing and second mortgage options. This score is a number, which is used to represent risk or lack thereof. A solid number can mean a wide variety of benefits; your choice of lenders, options, even interest rates can be affected by it. This is why so many consumers are taking their score so seriously in this day and age.

A good Fico score could earn you a lower interest rate on your mortgage saving you thousands of dollars over the term of your financing. It can also entitle you to more financial assistance. This can give you the opportunity to not only take out the mortgage but also handle other initial household expenses easily. The freedom of being out from under a large mortgage is something that is being experienced by people all of the time.

The next question you might be asking is how exactly is this type of score calculated? Your fico score is generated through the use of a software application. Your credit information is plugged into the software and it generates the score. The score may change based on the credit reporting agency that is used since they may use different software applications. It is important to find out the differences in these companies, so that you can have a firm understanding of what your score might look like.

The percentages however that determine your score are generally the same however, thirty five percent of the score is given to your payment history. This includes the accounts that have been paid as agreed, delinquent accounts, and any negative public collections or records. Thirty percent is given over to what you owe, how much, what types of accounts, how much of the revolving credit lines you have used, amounts owed on installment loan verse the original balance, and the number of zero balance accounts. Fifteen percent is made up by the length of your credit history. This includes total length of time tracked by your credit report, length of time since account optioning and the time since last activity. The last twenty percent is divided up between types of credit and new credit. Type of credit includes the total number of accounts and types of accounts. It is important to note that a mixture of account types usually produces a better fico score. New credit includes recently opened accounts, recent credit inquiries, time since recent inquires as well as if you are reestablishing credit.

Your score, the compilation of all the aspects of your credit history determines if you are a risk or not when it comes to mortgage lending. Credit scores are available with your credit report, though they do not fall under the free credit report allowable by law, they can be added to it for an additional fee. It is extremely advisable that you look into checking out the score so that you can take measures to improve it if necessary.

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