Office of Loan Programs What is a FICO score?
Jay Valancy
May 2001
Many mortgage
lenders, including the University, use FICO scores to assist in
evaluating mortgage loan applications. What is a FICO score?
The FICO score
is a numeric snapshot of your credit risk picture at a particular
point in time. The score is taken from an analysis of your credit
bureau report. It does not consider your gender, race, nationality
or marital status. It was developed by the Fair, Isaac Company to
assist lenders in evaluating how likely you are to repay your loan
in a timely manner. The company uses a proprietary formula to compare
your credit history with a nationwide database of millions of borrowers.
The result is a score from between 350 and 850 with 700 or higher
being generally considered a “good” credit risk.
As a general
rule, your FICO score is composed of five factors from your credit
report:
- Payment History
- Amounts Owed
- Length of Payment History
- New Credit
- Types of Credit in Use
Your payment
history is your track record. Obviously, this includes how often
you have made your past payments on time. Other components of this
factor include any public record collection items (bankruptcy, foreclosure,
etc.) and the number of accounts with no late payments. As past
behavior has historically been a good indicator of future behavior,
this factor usually receives the largest weight in calculating your
FICO score: 35%.
Another large
factor, 30%, is the total amount you owe on all accounts in comparison
to the number of accounts you owe money on. Also considered are
the types of accounts you owe on (credit card, installment loan,
mortgage), the number of accounts with zero balances and the amount
still owed on installment loans in comparison to the original loan
amount.
How long your
accounts have been established, both as an overall figure and average
of all your accounts, is a factor representing 15% of your score.
This area also considers how long since certain accounts were used.
The amount
of new credit you may have is about 10% of your score. This includes
the number of new accounts you have, recent requests for credit,
any possible “rebuilding” of your credit and the length
of time since you opened any new accounts.
Finally, the
FICO score considers the type of credit in use. The amount of each
type of account you have open is the remaining 10% used in determining
your score.
If you applied
for a University Home loan in the last three years, our credit-reporting
agency calculated a FICO score based on the Experian credit bureau
model. While many mortgage lenders use the FICO score to determine
the “pricing” of your loan (interest rate, number of
points, amount of fees), the MOP program provides the same interest
rate to all borrowers with no points or fees. You may obtain a copy
of the credit report produced at the time of your loan application
by contacting the Office of Loan Programs. If you would like a current
copy of your FICO score, including personalized analysis of the
factors used to determine your score, click on www.myfico.com. There
is a fee for this service.
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