Search This Blog

Friday, March 30, 2012

How is Your FICO Score Determined?

Interesting...A little education for all of you out there on how your FICO score is determined.

Read an excerpt from Get Rich Slowly, a blog that I follow:

Quick overview of credit scores and home mortgages
Let’s review the anatomy of a credit score. There are a few categories that determine your final number. All you Gwynns out there, lend a quick ear…

A FICO score serves as a quick reference guide for lenders to determine the risk level for them to give money. It’s a number between 300-850, the higher the better.
Lenders take your credit score and a few other pieces of information into consideration, such as age and salary, and make a decision about how your loan will play out. In short, a high score will be less risk, therefore a lower APR and less overall cost to the borrower.

Here’s a chart comparing APRs and total cost for a 30-year fixed mortgage on a $500,000 house:

Credit Score APR Including interest, your house will cost…
760-850 (best) 4.014% $860,760
700-759 4.236% $884,160
680-699 4.413% $902,880
660-679 4.627% $925,560
640-659 5.057% $974,880
620-639 (worst) 5.603% $1,003,560

--Taken from 
(Tim Sullivan)

Bottom line: the only way to build a good FICO is to borrow money (regularly) and pay it back. At the top of my game, I had a 769 FICO score and around $50,000 in open lines of credit, which (by the way) I was sooo proud of.

However my score was not an accurate measure of how financial sound I was. It was just my "I love debt" score...nowadays I count my financial security in actual cash and real assets.  That is, I let my FICO score take care of itself...the only reason I pull my credit report today is to make sure its accurate.

You think rich people give a flip about their credit score? We want to be RICH don't we?

One day I hope to be more like Gwynn in this story, she rocks! 

Check It Out!


No comments:

Post a Comment

Follow by Email