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Credit and FICO Scores

How are FICO and credit ratings evaluated? Five facets of data are used to assess and calculate a consumer’s credit worthiness. For groups of people with a limited span of credit the fundamentals of assessing credit may vary. However, for the general population, credit is based on the following factors:

Credit Payment History. Credit cards, loan installments, automobile notes and financing accounts make up the basis of how a consumer’s ratings are assessed. Negative credit indicators include bankruptcy, liens, judgments, lawsuits, wage attachments or collection items in the way of past due delinquencies are the determining factor for how much someone may qualify for a mortgage loan. Moreover, the length or span of time in which debts are delinquent can drastically diminish a consumer’s credit standing. Also, financial institutions review how long past due accounts have remained delinquent:

  • The number of past due accounts on file
  • The total amount owed
  • Number of current accounts and number on which payments have been satisfactorily made
  • The percentage and portion of credit lines compared to the total credit limits on the various types of revolving accounts
  • Lack of currently used balances
  • The total number of accounts with remaining balances
  • The number of installment loan amounts that remain outstanding

The span or length of credit history is another consideration that mortgage lenders and institutions evaluate when extending credit. Although, it may vary depending on how the time a consumer has maintained credit, FICO scores utilize the following criteria to calculate scores:

  • Period or length since accounts were opened
  • Length of time since the account has remained active
  • The proportion of recently opened accounts compared to the number of accounts were recently opened to the type of account
  • Amount of recent credit inquiries