YOU ASK:

Why is your FICO score directly related to your mortgage insurance?

WE ANSWER:

The FICO score is a value which the lenders use as a basis of whether you are a good credit risk or not.

If you don't have a high enough FICO score, you may find it difficult to obtain a mortgage. Consequently, you will have to save up for the 20% down payment on the home or real estate property.

The FICO score provides a weighted number that gives a clear indication of one's credit worthiness. The FICO score is provided by various credit reporting agencies and are based on the following factors:

Type of credit utilized 10%
Outstanding amounts 30%
Payment history 35%
Length of credit history 15%
New credit (recent loans) 10%

Since the credit agencies perform their own FICO computations, you may have a different credit rating for the various agencies. The variance usually comes from how frequent your credit details are updated.

If you have a high FICO score, you are likely to be granted a loan at lower interest rates. This provides a positive impact on your mortgage insurance as the loan is smaller (because of the smaller interest).

Another way that the FICO score is directly related to the mortgage insurance is that some mortgage insurers requires that the buyer have an acceptable FICO score before they agree to issue the policy, as well as have 10 percent equity on their home. The same is also the case if you want to refinance your home. An ideal FICO score would be 720 and above.

Thus, it is important to exercise care in getting and paying for credit, as these will affect your FICO score.

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