McGuire Real Estate

Mortgage Qualifications: FICO Score

by Eun Young Lee 12/01/2019

Image by David Pereiras from Shutterstock

Your FICO score is a key factor used to determine if you qualify for a mortgage. The Fair Isaac Corporation (FICO) is the creator of the most common credit score used by home loan providers. The algorithm used to create your score is a closely-guarded industry secret. But in general, it factors in your payment history, debt burden, length of credit history, and recent applications for credit. Your FICO score is powerful but there are things it cannot account for.

It does not indicate how much you can afford.

It does not reveal how much you have saved up for a down payment.

It does not understand your ability to budget.

It does not display your current bank account balances.

What does it do?

Your FICO score tells you (and your potential lender) how you have handled credit over the length of your credit history. Scores range from 300 (poor) to 850 (excellent). The primary factors that can hurt your credit score are late-payments and the debt-to-credit ratio.

Late Payments

Make your payments on-time every month especially if you are hoping to secure a mortgage. The more on-time payments you have the better your score will be. In some cases, on-time payments can dilute the impact of late-payments in your credit history. Newer incidences can be more detrimental to your score than older late-payments. Payments that are received 60, 90, or 120 days late count more against you than those that are late by over 30 days.

Credit Utilization

The total amount you owe is a consideration but the relationship between how much you owe and the credit available to you weighs more heavily when it comes to determining your FICO score. Another term for this is your credit utilization. Your debt-to-credit ratio is a measure of how much of your available credit you are using within a 30-day window. The higher the ratio of debt compared to available credit, the more likely you are to have a lower FICO score.

For instance, let’s say you and your partner both owe $1000 on credit cards. Your available credit is $1500, making your credit utilization two-thirds or 66 percent of your available credit. Your partner’s available credit is $4000, making their credit utilization 25 percent of their available credit. If all other factors are equal, your partner’s FICO score will appear higher. 

Ask your real estate professional for recommended financial resources in your area.

About the Author
Author

Eun Young Lee

Eun Young “EY” Lee has been living in San Francisco for the last 17 years. Over those years she has fallen in love with this beautiful city, the great food, incredible parks and mild weather. She enjoys exploring San Francisco’s different neighborhoods and seeing the unique character of them all. This exploration of the City and its neighborhoods sparked her interest in real estate.

EY grew up in New Jersey and New York, and is a graduate of the University of Pennsylvania. She has over 15 years of experience in market research and client services. Her success in the corporate world was derived from understanding her clients’ needs. This translates to a real estate agent who excels at assessing what each client wants and needs. This, combined with her knowledge of San Francisco, positions EY well to help clients find and sell their home by the Bay.

When not working, EY is an avid tennis player and can be found playing tennis throughout the city from Golden Gate Park to the Golden Gateway along the Embarcadero. She also enjoys making pottery at the Sharon Art Studio, skiing, and enjoying all the great food in the City and the Bay Area.