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What To Know About Your Credit Score - First Time Homebuyer's

Posted by:  Rick Carrier, Branch Manager
2016-10-18 18:18:01

The FICO score, created by Fair Isaac Corporation, is the standard credit score in the U.S. and is used in more than 90% of lending decisions. Credit scores range from a high of 850 (excellent) to a low of 300 (miserable); they are calculated using sophisticated FICO analytics software. Credit data, and how they are weighted for importance, are grouped into five categories when calculating your FICO score:

Payment History, 35%
Amounts Owed, 30%
Length of Credit History, 15%
New Credit, 10%
Types of Credit Used, 10%

The result, based on data reported by your creditors, is assigned a score that fits neatly in the 850 to 300 range.
A credit score, or FICO, of 750 or higher today is considered excellent credit. Borrowers in this range can expect to receive the best interest rates and repayment terms on mortgage loans.

Borrowers with FICOs of 749 down to about 680 are considered having a good credit. Decent mortgage rates and terms can be found for these applicants, although not as attractive as applicants with excellent credit. If you’re a would-be homebuyer with a score in this range, you will be considered a good credit risk, and you are likely to get a decent mortgage rate and term. Refinances are easier, as you’ll likely qualify to refi your mortgage for better rates and terms on an existing payment structure.

Average credit scores range from 679 down to about 621. Homebuyers in this range can still qualify for mortgages with relatively fair rates and terms. These borrowers should regularly review their credit scores and work to improve their creditworthiness.

Would-be borrowers with a credit score of 620 or lower face challenges securing a mortgage loan in today’s tightened credit market. Anyone in the 620 to 500 credit score range lucky enough to get approved for a mortgage loan can expect interest rates at least 3 percentage points higher than interest rates awarded to borrowers with good credit. If your credit score is at 620 or lower, you fall in the poor credit to miserable credit category and your chances of scoring a mortgage loan are zero.

As the information on your credit report improves, your FICO score will improve. How quickly it moves depends on your current credit profile, the change (good or bad) being reported, and how quickly information is updated by your creditors.

Review your credit score each year, to ensure you are building a stronger credit score, or keeping your healthy FICO. You have the right to obtain one free copy per year from each of the three major credit-reporting agencies (Equifax, Experian, and TransUnion). Monitoring your credit also helps you keep watch for and correct mistakes and flag and take action against identity theft—two very important credit concerns we all face today.

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