Your Fico Score And Applying For A Loan

Your Fico Score And Applying For A Loan



Your FICO Score and Applying for a​ Loan
Have you​ wondered how loan and mortgage companies decide whether or​ not to​ lend you​ money when you​ apply for a​ loan? For nearly all,​ the​ decision is​ based on​ one version or​ another of​ a​ 'credit score' based on​ your credit report .​
The most commonly used credit scoring 'device' is​ the​ FICO - software developed by Fair Isaac and Company to​ evaluate credit histories.
When you​ make an​ application for a​ mortgage loan,​ the​ finance company or​ bank makes an​ inquiry to​ a​ credit reporting agency .​
The credit reporting agency takes the​ information given them by the​ finance company and compiles a​ report based on​ information in​ its own records and other information that's a​ matter of​ public record .​
That information is​ not only compiled,​ it's fed into a​ software program that uses a​ series of​ algorithms to​ estimate the​ likelihood that you'll pay the​ loan back .​
It makes that estimation by comparing information about you​ with a​ profile created by compiling the​ 'ideal borrower' .​
The closer your information tallies with the​ 'ideal' profile,​ the​ higher your credit score.
Among the​ things that the​ FICO software evaluates when coming up with a​ credit score are:
the length of​ time you've been in​ your current job
the length of​ time you've lived at​ your current address
how long you've had credit of​ any kind
how many credit cards and loans you​ have
whether you've ever made any late payments (or made any in​ the​ past four years) on​ credit accounts
if you've paid off any loans in​ full
if you've ever had an​ account referred to​ a​ collection agency
how much debt you​ carry
how much credit you​ have available to​ you
Those are only a​ few of​ the​ factors that affect your credit score .​
But just how much does your credit score affect your chances of​ getting the​ mortgage you​ want?
According to​ many financial experts,​ while your credit score is​ a​ large factor in​ determining whether or​ not to​ grant a​ loan or​ mortgage to​ you,​ banks and finance companies take many factors into account .​
Most have their own underwriting rules and scoring systems of​ which the​ FICO is​ only a​ part .​
Those may include your employment history,​ the​ local job market and many other things .​
Based on​ all of​ those factors,​ a​ company may decide to​ extend a​ mortgage to​ you​ despite a​ low credit rating - or​ refuse you​ credit even if​ your credit rating is​ high.
One common belief is​ that a​ low credit score is​ forever .​
Nothing could be further from the​ truth .​
Your credit score is​ very fluid - it's meant to​ represent a​ picture of​ your current circumstances and ability to​ repay a​ loan that's extended to​ you​ .​
For that reason,​ new information added to​ your credit report will affect your credit score - and the​ further in​ the​ past that credit mistakes are,​ the​ less they matter .​
In some cases,​ it​ takes as​ little as​ 4-6 months of​ on​ time payments to​ bring your credit score up high enough to​ qualify you​ for a​ new loan or​ mortgage .​
a​ new job,​ a​ raise in​ salary,​ or​ paying down one or​ two credit cards could make the​ difference between a​ rejection and getting the​ mortgage that you​ want.




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