Money Monday: What does FICO have to do with my Home Loan?

Your FICO score is the yardstick by which most lenders measure your credit worthiness.

debt calculationThe major credit bureaus keep track of loans that you have taken out in the past and how well you managed this debt. A high FICO score indicates that you have been responsible with the credit extended to you and will reflect positively on applications that you submit, while a lower score indicates that you have had credit issues in the past.

Obtaining a copy of your credit score is an important early step in the purchase of your next home. It is typically recommended that you obtain a copy of your report 6 months before actually applying for a mortgage in order to attempt to clear up any discrepancies that you find. The last thing you want to hear during the home buying processis that you need to put your homeownership dreams on hold because of errors on your credit report.fico

The elements of your credit history that make up the report are as follows:

  • Past payment history – 35 percent,
  • credit use – 30 percent,
  • credit history – 15 percent,
  • types of credit – 10 percent, and
  • inquiries – 10 percent.

If you find any discrepancies you should immediately contact your creditor to clear up the issue so that a low credit score does not interfere with your home loan.

In the past, the only way to receive your credit report was to order and pay for a report from one of the major credit bureaus. However, thanks to the Fair and Accurate Credit Transactions Act you are able to order one free copy of your credit report each year. To order your free credit report you simply need to visit the following website: Annual Credit Report.

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