What is a FICO score and why do lenders need it?
origin of fico score:
Back in 1956, an engineer named William Fair and a mathematician named Earl Isaac came up with a formula to calculate the first credit scoring system. This calculation measures a consumer’s credit risk and has become a fixture in consumer lending in the United States now known as FICO.
The company started as Fair Isaac and Company named after the founders William Fair and Earl Isaac. In 2003, the name was changed to Fair Isaac Corporation before eventually being rebranded as FICO in 2009.
How to get your fico score:
You have three FICO scores, one from each of the three major credit bureaus: Experian, TransUnion and Equifax. Each score is based on information credit bureaus store on file about you. As this information changes, like new accounts and purchases, your FICO score tends to change as well.
what your fico score means to mortgage lenders:
The company released the first FICO score in 1989 and it is considered the holy grail of measurements. To lenders, scores are based on credit reports and credit scores range from 300-850. Lenders use the scores to gauge potential borrower’s credit worthiness and interest rates. The difference between a FICO score of 600 and 700 can often be tens of thousands of dollars over the term of a loan.
It’s a good idea to review your credit report and clear up any errors before applying for a home loan.
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Tags: credit, credit score, FICO, FICO score, homebuyer, personal finance, tips
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This post was written by Aaron Cottle