What is a FICO Score?

When you are looking to get a loan for your future home, credit scores have a major impact on the entire process. When you’re checking your credit score, there are many different types but the most commonly used is the FICO score. There are different versions of FICO scores and some lenders use a different type of FICO score for auto loans or credit cards.

A FICO score is made up of the following criteria:

1. Payment History- 35% of your score comes from making payments on time. Missing multiple payments can hurt your score.
2. Credit Utilization- 30% of your FICO score comes from credit utilization. This is the amount of credit you’re using compared to the amount available. It is recommended to keep your usage under 30% for the best scores.
3. Credit History- 15% of your score comes from the length of credit history. This is hard to control but you can help with this piece by making timely payments and not closing older accounts.
4. Types of Credit- 10% of your FICO score comes from the mix of credit in your history. There are two things to look for when it comes to types of credit—revolving credit and installment credit. Revolving credit can carry a balance such as a credit card and installment credit has a fixed amount paid monthly.
5. Inquiries- the final 10% of your score comes from recent inquiries. When you apply for a loan or credit card, the lender will run a credit check which is considered a hard inquiry. This can lower your score by a few points. However, a soft inquiry will not affect your score. You can control this part of your score by not applying for things without being fairly sure of an approval.

One thing that can affect credit but does not have a weighted percentage in your FICO score is derogatory information such as collections or bankruptcy. These derogatory remarks can severely lower your score but lose some weight over time.

By tracking your FICO score before you start trying to finance a home, you will know what parts of your credit report need to be improved for the best interest rates and approval. You can check your credit score for free and many credit providers will allow you to view your FICO score online.