FICO Has Something to Say About You

You have all heard me talk about FICO scores and how important they are to your financial health. I’m going to walk you through a scenario so you can see how FICO affects you.

Let’s say that you are going to apply for credit. You may be thinking of buying or leasing a new car, opening up another credit card, purchasing or refinancing a new home. Whatever it is that you’re thinking about doing, it will involve the potential creditor accessing your credit report and score. This will help them decide if you are credit worthy and what terms you will be offered.

When the creditor prints your credit report, they will be looking at your credit from a specific date. They’ll see who you have credit with, your credit limit, how much you owe, how long you have had your accounts, your history of paying back your debts, and whether or not there is derogatory / negative information with an account. All this information is put into a formula to determine your credit score.

The credit score that creditors use was developed by Fair Isaac and Company (FICO) to determine whether you are a good credit risk and what the likelihood is that you will pay the credit back on time. The higher your credit score, the less risky you appear to a potential creditor. FICO scores go from 300 to 850 – with 850 being the best.

This is one of the major factors in determining your creditworthiness. Creditors have guidelines that determine if you can be considered for a specific program. For mortgages, your credit score has to be at least in the mid-range to even be considered for a mortgage program. If your score is one point below the minimum score, I cannot offer you that mortgage program. Auto loans have similar guidelines. When you see car financing commercials that offer people 0% financing for "well qualified borrowers," they mean that you have to have a particular minimum credit score to be seen as "well qualified."

So what happens if you don’t qualify for the best mortgage program or that 0% car financing? You may still be approved, but you will be offered lesser terms. Those less than favorable terms will mean that you will be paying more money out of your pocket. A $250,000 mortgage at 8% instead of 6% will cost you an additional $335.00 per month.

Bottom line: keep your credit score as high as possible, by doing everything possible from your own. This includes making sure your payments reach your creditors before the due date and checking your credit report regularly for suspicious activity.

The Mortgage Arrangers, LLC
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