A FICO® score is a number representing the creditworthiness of a person or the likelihood that person will pay his or her debts. The three credit reporting agencies, Equifax, Experian, and TransUnion, collect data about consumers in order to compile credit reports. The credit agencies use FICO® software to generate FICO® scores, which are then sold to lenders.. A FICO® score is between 300 and 850. The higher the better the credit. Each consumer has three credit scores at any given time What factors go into determining a FICO® score?
Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulas for calculating credit scores are closely-guarded secrets, FICO® has disclosed the following components and the approximate weighted contribution of each: 35% — Payment History – Late payments on bills, such as a mortgage, credit card or automobile loan, can cause a consumer’s FICO® score to drop. 30% — Credit Utilization - The ratio of current revolving debt (such as credit card balances) to the total available revolving credit (credit limits). 15% — Length of Credit History – As a consumer's credit history ages, assuming the consumer pays his or her bills, it can have a positive impact on the FICO® score. 10% — Types of Credit Used (installment, revolving, consumer finance) – Consumers can benefit by having a history of managing different types of credit. 10% — Recent search for credit and/or amount of credit obtained recently - Multiple credit inquiries can hurt an individual’s score. . How does a mortgage modification affect my FICO® score? If a lender indicates to a credit bureau that the consumer has not made payments on a mortgage as originally agreed, that information on the consumer's credit report could cause the consumer's FICO® score to decrease or it could have little to no impact on the score. . How does a bankruptcy affect my FICO® score?
A bankruptcy is considered a very negative event regardless of the type. A bankruptcy is factored into your FICO® score until it is removed from your credit report. As long as the bankruptcy is listed on your credit report, it will be factored into your score. If you are considering bankruptcy as an alternative to foreclosure, keep in mind that it may have a greater impact on your FICO® score.
How does a short sale, deed-in-lieu-of foreclosure. or a foreclosure affect my FICO® score?
The alternatives to foreclosure, such as a deed-in-lieu of foreclosure or a short sale, aren’t any better than the bankruptcy as far as a FICO® score is concerned. The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure are all "not paid as agreed" accounts, and considered the same by your FICO® score. This is not to say that these may not be better options for you from a financial or tax perspective, just that they will be considered no better or worse for your FICO® score. |
Realtor®,Short Sale Specialist, Foreclosure Alternatives
