What's a FICO?

FICO scoring is a formula for credit risk assessment that is believed to be highly predictive of a borrower’s future payment risk. A borrower’s score is derived by weighing credit information at a snapshot in time and assessing “points” for each piece of information. The information is taken from a credit bureau file and scores are based on credit information only. By law, an applicant’s credit worthiness cannot be judged on race, religion, marital status, gender or nationality. According to Fair Isaac, the information is, therefore, objective and consistent and does not discriminate.

FICO scoring is reflective of credit patterns over a period of time. One late payment will not ruin your credit score. However, a history of late payments and high credit balances will have a serious effect on an individual’s score.

Events That Seriously Affect Credit Risk Assessment

Other Considerations In Credit Risk Assessment It is important to address potential credit issues before applying for your home loan. New debt will have an immediate negative impact on a buyer’s score. Revolving debt has higher negative impact on a borrower’s score than installment debt. “Shopping” for credit and opening new credit card accounts to pay off old accounts will influence scores. Pay down balances on open trade accounts, and pay your bills on time consistently.

Borrowers with low credit scores are now, more than ever before, able to purchase homes. A wide variety of home loan products is available to those buyers through alternative lenders. Talk to your realtor about your options.