FICO Score Information

Your FICO score is certainly something that anybody who has some interest in borrowing money is concerned about. If there was a magic pill to raise your FICA score by 50 points, almost everybody would take one of those. Mortgage lending is getting tougher and tougher... in spite of what the government says is going on in loosening of credit... and a high FICO score is even more important. For years people have tried to figure out the formula for determining that score, but it has been a well-kept secret. However, I recently read an article by Jeff Mandel and Marlin Brand Pres. and COO respectively, of ApprovalGUARD. It gave me some very helpful information. According to the authors, your credit score is based 30% on your payment history, 35% on the amounts of money that you owed compared to your available lines of credit, 15% on the length of your credit history, 10% on newly established credit and then 10% on the different types of credit that you use. You can see by these percentages, that the single most important figure is the one that relates to the balance you have outstanding compared to your available line of credit. That 35% is 5% higher than what your payment history has been. Just to be clear, the higher the credit score the better.

It seems that a higher credit score results when you keep your credit card balances at 30% or less of the authorized line of credit. Let's say you have a credit limit of $10,000 on your credit card, if you carry a balance of $9000 on it and pay it on time or even early all the time, that will result in a lower score than a person that has the same $10,000 limit that keeps a balance at $3000 or less and always pays on time.

Why is your credit score important? Mortgage lenders base the interest rate on your loan using what is called risk based analysis. A person with a credit score of 780 will pay lower interest rate than a person with a credit score of 715. The differences in interest rate can be significant one quarter of a percent to 1/2%, but more importantly some loan programs won't even be available to a person with a lower score. Some programs for second homes or investor (rental) properties may not be available to a person with a low credit score. In addition, a person with a lower score may be required to make a larger down payment.

Team Lorenz experts would be happy to connect you with a top-notch mortgage lender to get your credit report run, make sure there are no errors and maybe suggest some things to help improve the score. You want that score to be as high as possible when you apply for your loan. This is an especially good time for buyers as I'm sure everybody is aware it is a buyers market out there right now. Many sellers have reduced their prices back to levels of three, four or even 5 years ago. Those prices won't stay low like that forever; nor will the interest rates remain low forever. Please give Team Lorenz a call at 970-375-7007 and we will be happy to help.