WHAT'S A FICO®?

February 16, 2024

Tim Clarke

Boost your credit score for home buying. Learn how FICO scores work, minimums needed to qualify for mortgages, and expert tips to raise your credit.

FICO® stands for Fair Isaac & Company and is the name for the most well known credit scoring system, used by Experian.

The credit bureau’s computer evaluates a complete credit profile and assigns a score, which is used to estimate credit worthiness.

Each of the three bureaus (Experian, Trans Union, Equifax) employs its own scoring system, so a given person will usually have 3 separate scores.

Someone with a higher score will be viewed as a better risk than someone with a lower score.

Typically, scores will range from about 600 to 700 or above, although some cases will be outside this range.

What Kind of Score Do I Need for a Home Loan?

There are as many answers to this question as there are loan programs available. Most lenders will take the average of all 3 scores to evaluate an application.

Niche loans, such as Easy Qualifier and low down payment loans will have higher FICO® requirements.

How is My Score Determined?

The FICO® model has 5 main elements:

  1. Past payment history (about 35% of score) The fewer the late payments the better. Recent late payments will have a much greater impact than a very old Bankruptcy with perfect credit since.Myth - paying off cards with recent late payments will fix things. Payoffs do not affect payment history.
  2. Credit use (about 30% of score) Low balances across several cards is better than the same balance concentrated on a few cards used closer to maximums. Too many cards can bring down the score, but closing accounts can often do more harm than good if the entire profile is not considered. BE CAREFUL WHEN CLOSING ACCOUNTS!
  3. Length of credit history (15% of score) The longer accounts have been open the better for the score. Opening new accounts and closing seasoned accounts can bring down a score a great deal.
  4. Types of credit used (10% of score) Finance company accounts score lower than bank or department store accounts.
  5. Inquiries (10% of score) Multiple inquiries can be a risk if several cards are applied for or other accounts are close to maxed out. Multiple mortgage or car inquiries within a 14 day period are counted as one inquiry.

How Can I Raise My Score?

Your score can only be changed by the way that item is reported directly to the credit bureaus (Experian, TU, Equifax). Written confirmation from the creditor is required.

It is best to make these corrections before you try to purchase a home, because you can never be sure the exact impact a change will have on your score.

What Does This Mean to Me?

You should have your credit reviewed BEFORE you look for a home, and work with a PROFESSIONAL loan officer to make sure your loan is based on the most accurate information.

Final Thought from Tim

As a real estate professional with over 17 years of experience helping Triangle residents find their dream homes, I always emphasize the importance of knowing and nurturing your credit score prior to purchasing a home or refinancing.

Your FICO score plays a pivotal role in determining your mortgage eligibility and interest rates.

My top advice is to check all three of your credit reports from Experian, Equifax and Transunion at least 6 months before you plan to buy or refinance.

Dispute any errors you find immediately and get them corrected. This gives time for the changes to positively impact your scores.

Also, pay down revolving credit card balances to less than 30% of the limit.

Avoid applying for new credit or closing old credit cards as both actions can temporarily lower your scores.

Additionally, work with a trustworthy lender to evaluate your full financial picture, not just your scores.

An experienced professional will guide you on the best loan programs and rates for your situation.

I've built strong relationships with lenders across the Triangle area and take pride in connecting my clients to the right financing options.

Taking these proactive steps sets the stage for a smooth home buying or refinancing process.

My goal with every client is to make their real estate experience as pleasant and stress-free as possible.

With some care and planning around your credit, I can help turn your home ownership dreams into reality. Contact me today to get started!

Frequently Asked Questions About FICO scores

What is the range of FICO scores?

The range of possible FICO scores is 300-850. Most people score between 600 and 750.

What is a good FICO score?

FICO scores above 670 are considered good. 720 and above is considered excellent.

How long do closed accounts stay on your credit report?

Closed credit card accounts can stay on your credit report for 10 years from the date they were closed. This continues to impact your credit score.

Does paying off collections help your credit?

Paying off debt collections can improve your credit scores. The collection account will still show for 7 years though.

Does being an authorized user help credit?

Yes, being added as an authorized user on someone else's credit card can help build your credit, assuming the primary user pays on time.

How many credit cards should I have to improve my scores?

3-5 credit cards with low balances can help improve credit. Too many cards or high balances can lower scores.

Does checking your own credit hurt it?

No, checking your own credit scores or reports does not hurt your scores. Soft inquiries from yourself don't impact credit.

How long do hard inquiries impact your credit?

Hard credit inquiries from applications for credit can impact scores for 12 months or more.

How long do late payments impact your credit?

Late payments impact your credit for 7 years but recent lates hurt more.

Should I close old credit cards I don’t use?

Generally it's best not to close old credit cards as it can reduce your overall credit limit and length of credit history, both important FICO factors.

Tim M. Clarke

About the author

17 years as a Realtor in the Research Triangle, Tim seeks to transform the Raleigh-Durham real estate scene through a progressive, people-centered approach prioritizing trust & transparency.

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