Realtors and lenders are almost as bad as computer tech people at tossing out words and phrases you don't understand. The funny part is, sometimes even they don't know what those words really mean. FICO is one of them. It's not really a word, but the initials that identify the score given to your credit rating. A few Realtors and a few lenders have some idea of how those scores are reached, but they probably can't tell you what the letters stand for. Nothing. They're just the initials of the Fair Isaac Corporation. So now you're wondering what or who a Fair Isaac is, right? Bill Fair was an engineer, and Earl Isaac a mathematician. In 1956 they formed a consulting and decision management service, and in 1981 devised the credit scoring system now known as FICO. Under their system, each of a set of details about an individual's financial history is scored and given a weight, based on the past performance of others whose financial history is similar on that particular detail. Among other things, the system gives a score to: The length of time an individual has had and used credit The Existence of bank accounts The number of recent credit inquiries Debt to income ratio Debt to available credit ratio Bill paying history Lenders believe that by applying this compiled score, they know the statistical likelihood that a person will pay his or her debts. It must work, because FICO has become the standard, and this publicly traded company is a giant in the world of finance. With over 3,500 employees on 5 continents, FICO has an annual revenue of over $800 Million. Contrary to what some might believe, FICO is not associated with the government. In addition to providing credit scoring, FICO still provides consulting and management services. If your FICO score is over 720, you'll have an easy time getting a loan - or at least you would have before the current financial crisis. Right now that threshold may have been raised as many lenders have changed guidelines. If your score is under 600 you'll be considered a poor risk, and in today's climate probably will not qualify for a mortgage loan. If you do, you'll be charged a higher rate of interest and will likely need a larger down payment. So it really does pay to take the steps to raise your credit rating as high as possible.
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