When it comes to applying for a mortgage, your FICO score is one of the most important factors that lenders will consider. Your FICO score is a three-digit number that represents your creditworthiness, and it plays a significant role in determining whether you qualify for a mortgage and what interest rate you will be offered. In this blog post, we will explain what a FICO score is, how it is calculated, and why it is important when applying for a mortgage.

What is a FICO score?

A FICO score is a credit score developed by the Fair Isaac Corporation, which is the most widely used credit scoring model in the United States. FICO scores range from 300 to 850, and they are based on information from your credit report. Your credit report contains information about your credit history, including your payment history, the amount of debt you have, the length of your credit history, and the types of credit you have used.

How is a FICO score calculated?

FICO scores are calculated using a complex algorithm that considers various factors from your credit report. The most important factors that affect your FICO score are:

  • Payment history: Whether you've made your credit payments on time.
  • Amounts owed: The total amount of debt you have and how much of your available credit you are using.
  • Length of credit history: How long you have had credit accounts open and the age of your oldest credit account.
  • Credit mix: The different types of credit accounts you have, such as credit cards, loans, and mortgages.
  • New credit: How many new credit accounts you have opened recently and the number of inquiries on your credit report.

Why is a FICO score important when applying for a mortgage?

When you apply for a mortgage, lenders use your FICO score to determine your creditworthiness and your ability to repay the loan. A higher FICO score indicates that you are less of a credit risk, which can result in a lower interest rate and more favorable loan terms. Conversely, a lower FICO score can result in a higher interest rate and less favorable loan terms, or even the rejection of your mortgage application altogether.

In addition to determining your interest rate and loan terms, your FICO score may also affect the amount of money you can borrow. Lenders typically have minimum FICO score requirements, and if your score falls below that threshold, you may not be eligible for certain loan programs or may only be able to borrow a smaller amount of money.

How can I improve my FICO score?

Improving your FICO score can take time, but there are several steps you can take to help boost your score, including:

  • Making all of your credit payments on time
  • Keeping your credit card balances low
  • Limiting the number of new credit accounts you open
  • Regularly checking your credit report for errors and disputing any inaccuracies
  • Maintaining a long credit history by keeping old credit accounts open

When applying for a mortgage, your FICO score is an essential piece of the puzzle. It is important to be aware of how this all-important number can influence whether you qualify and on what terms - by keeping tabs on it and working to improve any shortcomings, you could get approved much easier with better conditions. 

It is best to get in touch with your loan officer early in the process if possible.  This way they are able to review your credit reports and find out if there are areas that you will be able to improve, or if there are some possible errors on your report that is adversely impacting your FICO score.  

You are also able to setup credit monitoring through the 3 major credit bureaus if you would like to.  Experian, Equifax, and TransUnion all offer these services if you would like to keep an eye on your credit yourself.  As always, please let us know if you have any questions at all and we will do our best to answer them for you.