For those of us who live in the United States there is a number that we should be concerned bout when applying for a mortgage and that is the FICO score. This simple number will determine the interest rate you pay, the credit limit that is set and whether or not you get the loan you need to buy that house you have your eye on.
When your score is low you will be applying for bad credit mortgages and will not be in any position to negotiate a good deal with your lender. If you get a mortgage at all you will just need to accept the terms you are offered.
What Is A Fico Number?
FICO stands for the Fair Isaac Corporation who have been around since the 1950′s and originally handled credit histories for companies and consumers. These days their main function is to collect reports from the credit reporting agencies that collect individual credit information namely: Equifax, Experian, and TransUnion.
FICO analyzes the data collected and uses it to generate a number which aims to give a general idea of a consumers credit worthiness taking into account credit history, debt and credit and basically all the information that all lenders and credit agencies have on your financial past.
The number is used by potential lenders to decide how much a risk you represent to them. Obviously they are in the business of getting the money back from you, so if they think you represent a high risk according to your credit rating they will have to charge you higher interest rates to compensate. That is if they grant you a bad credit mortgage loan at all.
There are several things you can do to improve your credit rating and I will go into them in a future article.