When the time comes to
apply for a mortgage at the Lake of the Ozarks, your lender will need to determine the likelihood of you making your payments. Lenders use the FICO Score (credit score) to determine your credit risk. Today we are going to talk about how your
Lake of the Ozarks mortgage lender can help you understand what this number means, and how it affects your home buying capabilities.
What is a FICO Score?
FICO Scores are the most widely used credit scores. This type of credit score was created by the Fair Isaac Corporation, which specializes in “predictive analytics.” Predictive Analytics means that they take information and analyze it to predict what is likely to happen. They also create credit scores, but FICO itself is not a credit reporting agency. They will use the information provided by Equifax, Experian, or TransUnion. In the end, the FICO Score, along with other details, will be used to assess credit risk and help your lenders determine whether or not to extend credit.
How is a FICO Score Determined
FICO Scores range from 300 to 850. In general, scores above 660 indicate good credit, while those below 620 indicate not so good credit. The score takes into account information from 5 different areas, each carrying a different weight in the equation:
Payment History - 35%
Current Level of Indebtedness - 30%
Types of Credit Used - 10%
Length of Credit History - 15%
New Credit Accounts - 10%
The importance of any one of these factors is also determined by the overall information on your credit report. For example, if you have not been using credit very long, your score will be factored differently than those with a longer credit history.
Understanding a FICO Score
One of the first things that a mortgage lender will want to know is whether or not you have paid past credit accounts on time. The next important point is how much you currently owe (your debt to income ratio). One good thing to remember is that having credit accounts and owing money on them does not necessarily mean that you are a high-risk borrower. Another aspect that plays into your FICO Score is the length of your credit history. In general, a longer credit history will increase your FICO Score. Your credit history takes into account how long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average of all your accounts. Credit history also looks at how long specific accounts have been established and how long it has been since you used certain accounts. The next step is to look at what types of credit you have, including credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. New credit accounts will also come into play. Research shows that opening several credit card accounts in a short period represents a greater risk. Collections, past-due accounts, late payments and charged off accounts have a negative impact on your score and can significantly decrease it.
Your FICO Score is not only used to determine whether or not you will be approved for a
home loan at the Lake of the Ozarks but will also determine what interest rate will be offered to you. If you have questions about your credit score and how it affects your plans to
purchase a home at the Lake of the Ozarks, let us know! You can fill out an application on our website at
www.yourlakeloan.com as well as contact us directly to learn more. We look forward to helping you with this next step in your life!
For Lake area news, resources and tips on financial services, please
Michael Lasson
4655 B Osage Beach Parkway
**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.
