When applying for a home loan or any type of loan, lenders will look at your FICO score. Your credit rating, ease of applying for loans, and getting favorable credit terms depend on this score. FICO also goes by the term credit bureau score.
This credit rating score ranges from 500 to 850 with 500 signifying very bad credit or lowest credit rating and 850 as having the best credit history. These scores tell banking and lending institutions how much risk there is in lending you money or credit. The score is derived from three major credit reporting agencies: Equifax, Experian, and TransUnion.
The score is of course just one of the criteria for determining if you'll be approved for a loan or credit card. Other factors include how long you've held down your job, your job history, and so forth. But the FICO score can influence what kind of interest rates will be applied to your next home mortgage, auto loan, or personal loan.
A person with a FICO score of 593 that applies for $95,000 30 year fixed home loan may end up with an interest rate of 7.85% while another person with scoring of 815 could apply for the same mortgage but enjoy a lower interest rate of 4.99% from the very same mortgage company. Of course that's considering all other factors are nearly identical. If that doesn't sound like a big deal, just pop the figures in the mortgage calculator and run the figures. The table below illustrates what you'll find:
The person in this example with FICO score of 593 would pay $177.77 more per month and pay an additional $63,996.50 in interest charges over the term of the mortgage compared to the person with FICO score of 815. That's a big difference!
Items that influence your FICO score.