What’s a FICO score?

My Credit Score is Decent.
or is it?!

How many times do we REALTORS hear buyers say, “My credit is good” when it really it isn’t? Constantly. Some buyers think that their credit is in great shape when it isn’t because they don’t understand what good credit is considered these days and how lenders arrive at a different score than what you might find online.

Here is how a FICO score is determined so you can take steps to improve yours:

* 35% is determined by your payment history: having a long history of making payments on time and no missed payments on credit accounts is one of the most important items lenders look for.
* 30% is determined by amounts you owe: measured by the amount you owe relative to the total amount of credit available to you. Someone closer to maxing out their credit limit is deemed to be a higher risk for late payments in the future and this can lower his credit score.
* 15% is determined by the length of credit history: a credit report containing a list of accounts opened for a long time is ideal. The score considers your oldest account and the average of all accounts.
* 10% is determined by new credit accounts: therefore, opening several new accounts in a short period of time can lower your score. Also, multiple credit inquiries can represent a higher risk; except for those initiated by you, an employer, or a bank when soliciting “pre-approved” credit offers. To compensate for rate shopping, the score counts multiple inquiries in any 14-day period as just one inquiry.
* 10% is determined by the types of credit in use: how many retail accounts, finance company loans, credit cards, and mortgage loans are given consideration.

When all is said and done, the best number to have before taking out a loan is 740 or above. This score is viewed as a safe risk and you can get a loan fairly easily and at the best rate. Less than 740 just makes things more difficult and the interest rate possibly higher.

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