[I]f you have been shopping for a home mortgage loan, you are probably familiar with a term called FICO. In most cases, your FICO score will determine whether you can obtain a mortgage loan as well as the interest rate you will be required to pay. FICO, a computer software program designed by Fair Isaac Corporation, literally calculates how much of a financial risk you pose to your lenders.
Lending representatives looking at your credit reports along with computer software programs analyze several elements when determining your credit rating. The amount of money you owe, the type of credit accounts you have, and whether you have a habit of paying your financial obligations on time all determine your FICO score.
Your payment history will typically determine about one-third or 33 percent of your FICO credit score. Poor habits such as late repayment of credit cards or previous loans and the length of time these accounts have been past due will detrimentally impact your credit history rating.
How much debt you owe creditors creates about another third of your FICO credit score. Just how much you are obligated to repay versus your income level can make or break your FICO score. If you owe more money than is determined reasonable for your salary, then you risk being denied a mortgage loan or paying rather high interest rates.
The length of your credit history, how many accounts you have, and how often you apply for credit determine another third of your FICO score. If you have been using credit for less than three years, you will have a lower credit score than someone who has been using credit for at least five years.
Don’t fall for promises of “quick fixes.” Regardless of your financial history, the only way to really boost your FICO score is to live a healthy financial lifestyle. Always ensure that you pay your credit card bills and loans promptly and keep your charge card balances as low as possible.