How Credit Scores Affect Your Credit?
Because most lending is Internet based today, a credit standard is needed to put everyone on the same page. As a result, a scoring system was developed and has become a universal, though sometimes controversial and misunderstood standard. FICO scoring, the industry standard, is named after Fair, Isaac and Company, the California-based firm that developed the software.
From the person’s financial data, it creates a computer-generated numerical number that predicts a lender’s risk in loaning you money. Your FICO score can change from day to day, depending on what information is available from various credit sources.
When a mortgage lender orders a credit report, the credit bureaus evaluate and assign a numerical score to five different parts of your credit history. Two of the five factors, relating to your payment history and how much current debt you have, make up roughly 65 percent of the score. The length of your credit history, recent credit inquiries, and the type of credit you use make up the remaining 35 percent.
FICO scores range from 300 (very bad) to about 850 (you walk on water), and the better your track record of paying loans back promptly, the higher the score. Typically, scores of 680 plus get the best rates and terms, although some lenders are requiring 700 or above for conventional loans.
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