FICO Scores and Your Interest Rate
Your credit score affects many different things that are a part of everyday life such as applying for a credit card, refinancing your house, applying for loans in college, and even your mortgage. Each of the 3 bureaus, Equifax, Experian, and Transunion have their own individual scoring methods. Most mortgage lenders determine your credit risk by using the FICO score. A FICO score is a third party credit scoring system used by lenders to predict the risk they would take by issuing a loan. FICO scores range from 300-850, making the median FICO score in the 700s, but if you want to get the best rates you want a score of at least 760. The highest FICO score possible is 850, but not many people have scores higher than 800. The higher your FICO score, the more money you can save each year. People who have a FICO score of 760 and above qualify for lower interest rate on their fixed-rate mortgages. However, people with lower FICO scores are paying a lot more in interest. Your score also affects the rate you pay for private mortgage insurance, the amount of documentation your lender requires when you apply for a loan, the amount of your down payment , the type of loan you receive and how big or small that loan is going to be. The lower your score, the less money you are able to borrow from the bank. Being late on bills or maxing out credit cards are just a few ways to mess up and lower your FICO score. Low credit scores are an indication of being high risk to the creditors and financial lending institutions.
Your FICO score is calculated based on your payment history, outstanding balances on credit cards, length of credit history, any new credit you have, types of credit you have used, and your credit report. When calculating your credit score each area of your credit is weighed and used differently, and that is vital to getting a high FICO score. Make sure to be on time when paying your bills and managing your existing credit because even a few late payments can negatively affect your score.
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