FICO Credit Score
A borrower's credit score, or FICO score, is a number ranging from 350-850 that measures your overall credit history as seen by lenders. The higher someone is to the 800 range, the more appealing you are to prospective lenders and your loan terms offered are usually better.
The FICO score, which is the most frequently used by lenders, bases the borrower's score on reporting from Experian, Equifax, and TransUnion credit bureaus.
- Elements that Make Up Your Credit Score
- • 35% - Payment history, including late payments
- • 30% - Credit utilization, the utilization rate of debt used to the account's maximum available credit
- • 15% - Length of credit history
- • 10% - Type of credit (Mortgage, installment, revolving )
- • 10% - # of recent credit inquiries
EXPERT TIP: Visit AnnualCreditReport.com for information on obtaining your credit report for FREE. If you want to see your score, it will require a fee of approximately $15-$30. Keep in mind, lenders use FICO version 98 while online score sellers use a different scoring system.
Underwriters and loan programs have conditions to be approved for a certain loan product. Another way for lenders to determine your creditworthiness is by reviewing your debt to income ratio, also called DTI. This number shows the percentage of your gross monthly income that is allocated to paying debts. In order to get an approval for a loan, underwriters analyze two types of debt ratios.
Front End Ratio
The percentage of income that is used to pay for housing. Although, not set i stone for all loan products, lenders prefer the front-end ratio to be around 28%.
Back End Ratio
The percentage of income that is used to pay for all monthly debt payments, including housing. Lenders allow any back-end ratio under 43%. Some jumbo programs have overlays of 38% when it is 90% financing.
Being financially healthy involves having a low DTI.