What is your FICO score?
FICO stands for Fair Isaac Corporation, the creators of this scoring system. The FICO score uses a mathematical formula to weigh a number of factors that indicate the level of risk you pose to a potential lender, including:
- Debt load
- Payment history
- Types of credit you have used
- Length of credit history
- New credit applications
What’s a good score?
FICO scores are measured numerically between 300 and 850, with 300 being extremely poor and 850 being extremely good. 650 is generally considered a good score that will make it much easier for you to get a good interest rate on financing your home. If your score falls below 620, you may have a hard time finding good financing for your home purchase.
Why does it matter?
Most people must seek financing in order to buy a home. Your FICO score will determine whether or not you can even find a lender willing to finance your purchase in the first place, as well as how high the interest rate will be on your mortgage.
Home buyers with higher FICO scores benefit from substantially better interest rates, which can mean much lower monthly payments. For instance, a buyer with a score of 720 could enjoy an interest rate as much as 2% less than someone with a score of 620.
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