If you’re considering applying for a loan to buy a home, you should familiarize yourself with your FICO score.
Your FICO score is the credit score that shows up on your credit report that lenders will see when you apply for a home loan. This score can be critically important in determining if you qualify, and what rates you would receive.
“Fico” stands for the Fair Isaac Corporation, and was established in 1989 as an all-purpose credit score. There are 5 main factors that go into your FICO score: current level of debt, the overall length of your credit history, payment history, what type of credit you have, and any new credit you may have. These are all aspects you have a fair amount of control over, and you should be extremely careful about the ways you maintain and use your credit. If you are cautious of your spending and quick to pay off debts, your FICO score will rise.
The typical FICO score ranges from somewhere between 300 to 850. The higher the score, the better your credit is. Lenders will place a high value on this number, ideally looking for as close to 850 as possible. In order to be eligible for better rates on your loan, keeping your credit score above 620 is ideal.
There are a few ways you can work to raise your FICO score, to ensure you are able to get the best rates on a home loan. The most effective is to stay current on all bills, and pay them on time. You can also keep your credit balances low, as high credit card balances can drastically lower your FICO score. Try to keep your balances below 25% of your credit limit.
It’s also recommended to avoid opening lines of credit that you don’t need. Many people think that getting multiple credit cards and paying off small purchases quickly will boost their credit score. This could backfire, as new accounts will lower the average time you’ve had credit accounts established.
And don’t be afraid to request and check your own credit report. This won’t affect your score, as long as you request your report directly from a credit reporting agency. You’re entitled by law to one free credit report every 12 months from each credit reporting agency.
Now that you have a better understanding of how your FICO score works, you can use it to your advantage before applying for a home loan.