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Making Sense of the FICO Score

By Edited Nov 28, 2013 0 0

There are many phrases tossed around in the world of real estate that don't make a lot of sense to the regular Joe. Lenders and realtors sometimes seem to be speaking a different language when they speak. Having an understanding about specific realtor terms can put you on an even playing field when you need to do business with them.

FICO is a popular realtor term that is often used in real estate world, and one worth getting to know. FICO is actually initials that tell what an individual's credit rating is. Although many lenders and realtors know how this score is determined, a surprising number of real estate exec's don't know what FICO stands for.

Actually, FICO stands for the Fair Isaac Corporation. Bill Fair was a mathematician who put together a consulting business management corporation in 1956. In 1981 that corporation came up with the FICO credit score system we use to this day.

With this FICO system, every detail of your financial history is given a score and is graded and compared to someone else: based on the past financial history of other individuals who are similar to you in some way, the state of your finances is given a FICO grade.

The FICO score takes many aspects of your financial history into consideration when tabulating a score. They look at how long you've had credit and how you've actually used your credit. The score also takes a good look at your relationship with any banks. They examine all of the action that's taken place in your bank accounts.

The FICO score looks at any credit inquiries you may have had. They also find out what your Debt to Income Ratio is, as well as your ratio for Debt to Available Income. They also examine your track record for paying bills.

All of this is important because it's believed that, by coming up with this FICO score, lenders will have an idea of how lender-friendly you are. If you've got a good FICO score then lenders think there's a better chance that you will pay your loan back on time and in full.

And the FICO score is used widely as the best indicator of someone's financial stability. FICO is spread out over 5 continents and is an $800 million corporation.

But FICO isn't run by the government. In fact you can go to FICO to get some management and consulting services.

So what is a good FICO score? You want to get a loan you should aim for a FICO score of over 720. This is the bare minimum score in today's shaky economy. Lenders want to have full confidence in your finances before handing you any money.

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