How Does Your FICO Score Affect Obtaining a Home Loan?

It is important for us to know that your credit score plays a major role in your home buying process. Lenders use your credit score to determine the risk of granting you a mortgage and to determine your interest rate. Your credit score is used to determine risk. They are calculated by putting your data from your credit report into software from Fair Isaac and Company that analyzes it and gives a number. The three major credit reporting agencies might have different scores because they use different software to calculate the scores.

In summary, your credit score calculation is based on 35% of your payment history, 30% of your credit account balance,15% of the age of your credit history, 10% of the type of credit and 10% of new credit obtained.

Your payment history includes the number of account paid, negative public records or collections and your delinquent accounts. Your delinquent accounts will show the number of past due items, how long those items were past due and how long since your last payment on them.

Your credit account balance will include how much you owe on accounts and the type of account with balances. It shows how much revolving credit you have used. FICO will look for ways you have overextended your revolving credit account. They weigh the amount you owe on your installment account and measure it with your original balances to make sure you are paying them on time and consistently. They will also take into consideration the number of your zero balance accounts.

Your credit history is measured by the total length of time tracked by your credit report. They take into account the length of time the accounts have been opened. They also review the last activity you made on the account in question. Take note that the longer your good credit history is, the better your scores.

Your new credit is measured by the number of accounts you have recently opened, the ratio of new accounts opened to the total number of accounts owned, number of recent credit inquiries and the time passed since recent inquiries or newly opened accounts. Make sure you are not attempting to open too many accounts because it might lower your score.