What Is a FICO Score: How Does it Affect Your Mortgage Rate?

If you're just starting out in mortgages and refinancing, or if someone else has been doing your finances for you and you want to learn how, then your FICO score is something you're going to need to know about. You may recognize what a FICO score is by hearing its more common name: your credit score. Your FICO is extremely important when it comes to refinancing your mortage or obtaining a new mortgage. A low FICO could literally save you thousands of dollars every year..If you still want to learn more, then by all means keep reading.

Your FICO score ranges from 450 to 850 depending on how well you've handled your credit in the past (among several other factors), but those two extremes are very rare in reality. In fact, studies have shown that only one percent (1%) of the population has a FICO score higher than 800, and only twenty percent (20%) are below 620. There are some ranges within these two numbers, though, that have various meanings for you. If you have a credit score over 720, you're doing very well; between 700 and 720, you can still get good financing terms from creditors; between 675 and 700, you're still doing decently, but after this, it gets a little choppier. Between 620 and 675, you're probably going to have some difficulty with getting good financing terms; between 560 and 620, you'll probably have trouble even getting credit; lower than that, and you had better start improving your FICO score, fast.

The breakdown of the FICO score is like this: your payment history makes up the largest portion at 35%, while the amounts you owe follow closely at 30%. The length of your credit history is about 15% of the score; new credit takes about 10%, as do the types of credit you've used.

Your payment history is pretty simple, actually: it consists of your credit cards, loans of any type (installment and mortgage, for example), retail accounts, and financing company accounts. It keeps track of the amounts you owed in the past and how well you paid them off, as well as any bankruptcy information. The time period of problems does have an affect, though - if you missed a few payments a long time ago, it won't have nearly the effect as if you missed those same payments in the past couple of years. All of this is why it has such a large impact on your FICO score.

The amounts owed are a list of the current amounts you owe to someone; this still has a large effect on your credit score, so having too many loans already can make it difficult to get any more. The length of your credit history contains all available information on when your accounts were opened and when the last activity was in each of those. New credit keeps track of all your recently opened accounts. The types of credit you have used, last of all, show what sort of financing you've held over the years.

Why is your FICO score so important? Well, it determines whether or not you can get financing for future projects or cars or loans that you may need for that business boost or that home repair. You should probably check your FICO score once a year to correct any issues before you need to apply for credit. Recent laws allow one free credit check per year, so you might as well use that, at least.