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What is a FICO score?

FICO scoring is a formula for credit risk assessment that is believed to be highly predictive of a borrower's future ability to repay the loan.  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.  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 Effect Credit Risk Assessment
  • Bankruptcy
  • Non-bankruptcy derogatory public records
  • Charge-offs or loan defaults
  • Repossession
  • Serious delinquency
Other Considerations In Credit Risk Assessment
  • Number and age of credit lines
  • Presence of derogatory credit line information
  • Current level of indebtness
  • Types of credit available (revolving vs. installment)
  • Amount of time credit has been in use
  • Credit inquiries
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 that 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 still may be able to purchase homes.  A wide variety of home loan products is available to home buyers through alternative lenders.  Talk to your Realtor about your options.
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