So you have applied for a mortgage loan, but find that your lender is asking you for a FICO score. You go out and get one, spend money for the assessment, only to find that your score does not meet the required minimum. The lender rejects your loan application, leaving you with few other options to get your mortgage.
Mortgage Ogden, a mortgage group in Utah, states that people with a FICO score below 620 will likely not be approved for a loan. People with lower FICO scores can also expect to have higher interest rates, which can cost a lot of money as the additional interest builds up over time.
What is the FICO score anyway and why is it keeping you from getting your mortgage loan? Why is it affecting your interest rates?
What is a FICO Score?
The FICO score is the primary credit-scoring model of the United States. The Fair Isaac Corporation (FICO) introduced it in 1989. It tells banks and lenders how creditworthy you are, and determines how likely you are to pay your debts. For example, people who always pay their dues late usually have a lower FICO scores than people who always pay on time.
The FICO score allows banks to assess whether a person is a credit risk and whether a particular person is safe to lend money to. After all, lenders profit because of interest and a borrower who cannot pay means a loss of revenue.
The Elements of a FICO Score
A number of metrics determine your FICO score. This breaks down into:
• Payment history (35%)
• Debt burden (30%)
• Length of credit history on file (15%)
• Types of credit used (10%)
• Recent searches for credit (10%)
FICO keeps its exact methods for calculating the credit scores secret, but the general rule of thumb is that you should always keep up with your payments. The biggest elements that make up the score are your payment history, and how much debt you have.
The rest determines your credibility – the last part, for example, includes the recent searches for credit. People who apply to many credit facilities over a short period are considered less trustworthy and will be given a lower FICO score.
If you want your FICO score to be better, you need to aim for the highest possible score. Not only will lenders be more open to approving your mortgage, but you can get better interest rates as well.