Know Your Numbers – All About FICO Scores

When preparing to buy a home, FICO is one of the most important acronyms you need to understand. FICO is the largest and best known of several companies that provide computer-generated number that analyzes your credit history, spending habits and rates your ability to repay future debts.

The Fair Isaac Corporation was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac, with the first FICO scores issued in 1989. This score plays a critical role in your ability to secure financing for a home purchase (or refinance).

In fact, 90% of top lenders use FICO scores when making lending decisions.

Your score specifically affects the type of mortgage you’ll qualify for and the interest rate you’ll pay. The specific factors that go into calculating the score include:

  • Timely payments
  • Any collection activity or other negative actions
  • Overall amount of debt
  • Number of credit accounts
  • How much available credit you have on those accounts
  • Quantity and source of recent credit inquiries

Knowledge Is Power

So that there aren’t any nasty surprises as you move through the house hunting and mortgage application processes, it’s wise to request and review copies of your Equifax, Experian and Trans-Union credit reports as soon as possible. Federal law allows you to request one free credit report per year from each of the three previously-mentioned credit reporting companies.

Please note that there are many companies offering a credit report (and even use the word Free in their name and URL), but the correct place to receive your free reports is at Requesting your own reports does not count against you as an inquiry, but too many “hard inquiries” from mortgage, auto or credit card companies can negatively affect your FICO score.

- By The Compass Hawaii Team, Mar 19, 2019