Stand and Be Measured: What is a FICO Score Anyway?

Stand and Be Measured: What is a FICO Score Anyway?

Another month, another rent payment that’s helping your landlord pay off the house or apartment where you’re living. Another month, another rent day spent pondering just how much equity you could have paid down on your own house by now. So, why not you? Why not now? Sure, buying a house can be complicated and intimidating, but your mortgage professional and Realtor will be there every step to help.

Wait, let’s take a step back. Before you even call them, it’s important to fill in some informational blanks. For example, do you know what a FICO score is or how it affects your ability to get a mortgage? A lot of first time homebuyers will need to do some work on their credit accounts, so it’s a good idea to start looking into this stuff six months to a year before you bite the bullet and make a loan application.

Today, we’re going as basic as it gets with the FICO score.

Fair Isaac Really Isn’t Judging You, Mostly

So, back in the 1950s, getting credit was a whole different kind of thing. Rates and down payments or securities were high, terms were short and credit was not nearly as widespread as it is today. Then two fellows named Bill Fair and Earl Isaac came along. They believed that there had to be a better way to make business decisions using data and computer algorithms (a bit ahead of their time, eh?), successfully completing the first credit scoring system in 1958.

By 1970, the Fair Isaac Company was delivering scoring systems for bank credit cards, then in 1981, it developed the credit bureau risk score — similar to the one your bank will be using to determine if you’re going to get a mortgage. The secret proprietary algorithm has been updated throughout the years in a quest to develop the most accurate picture possible of potential borrowers based on their past behavior.

Your FICO score isn’t a judgement of your character, of your job or anything like that. It’s simply a number that tells lenders how likely you are to be willing and able to pay back credit over the long run. If you’ve never had credit or not had much credit experience, expect your number to be lower simply because there’s no data on you. If you’ve had some credit, maybe a student loan or a car loan, and always paid on time, you’re probably golden.

A score of 620 is serviceable, a 650 is generally enough to get a mortgage.

What’s in a FICO Score?

A lot of people are confused about what exactly gets figured into a FICO score. FICO is just an algorithm, remember, so there’s nothing that it can calculate without being fed data. So, the score is based on the information from whatever credit bureau that you’re using to request a FICO score. Nothing else. Things like your on-time utility payments or car insurance, for example, don’t tend to report, so they won’t be added into the calculation.

When shopping for a pre-mortgage score, it’s best to look for a tri-merge report, or a product that gives you scores from all three bureaus: TransUnion, Experian and Equifax. This is exactly what your bank will do to qualify you. offers this service and you’ll get scores directly from the horse’s mouth, but feel free to use whatever tool works for you. There are plenty of legit sources out there that can approximate your FICO score.

The main factors that influence that score are probably exactly what you’d expect. They’re bits and pieces that are telling about your credit usage and ability to repay. FICO’s own site lists these as the primary components and weights of an average borrower’s score:

Payment History (35 percent). If you don’t make your payments on time, the credit bureaus report that and FICO makes a note. Non-payments, late payments and the like don’t report until they’re 30 days past due, but it’s still good practice to pay on or before the due date. If you’ve had late pays in the past, just keep paying on time now. The more space you put between today and those late pays, the less they’ll affect you.

Amounts Owed (30 percent). Are your credit cards maxed out? … like, every month…? Well, this is something you need to get a handle on. This metric looks at not only how much you owe, but how much you owe in relation to how much credit you have. The magic number for utilization is a meager 30 percent. If you’re trying to establish credit, it can be a tricky thing to keep your usage under 30 percent, but above zero to prove you can maintain payments long term.

Length of Credit History (15 percent). The age of your credit accounts, as well as the average age is considered under this metric. FICO looks at both opened dates and the date of last utilization to figure out your risk here. To even be in the running for a bronze medal, you need an average credit line age of over two years, but people with extremely good credit scores may have credit histories of 25 years or more.

New Credit (10 percent). FICO wants to see if you’ve recently acquired a bunch of new credit, maybe in anticipation of charging everything up and fleeing to Canada. Experience has told them that suddenly opening several new accounts in a flurry means that you’re a big time risk for default.

Credit Mix (10 percent). Do you only have store credit cards, or do you also have a car loan and a student loan? The better the variety in your credit history, generally the better risk you represent. Don’t run out and get a bunch of different loans just to see how it shakes out, but if you just have a car loan, it won’t hurt to get a small credit card through your bank just for emergencies.

Improving Your Credit for Beginners

Now that you know what the FICO algorithm considers when it calculates your score, you can use this information to improve your credit score before you apply for a mortgage. Be patient, though, it takes time to see these kinds of changes manifest.

Start by going to and requesting your free credit reports (you’re entitled to a set of free credit reports from this site once a year). Check them thoroughly for errors of any sort. Dispute, dispute, dispute. Many credit files have some kind of errors on them.

While the credit bureaus are working on your disputes, you can start to pay off any judgements that appear on your credit reports, as well as developing a plan to pay each and every future payment on time. If your checks come on a regular schedule, autopay isn’t a totally bad option, but if you’re part of the gig economy, of course, that’s probably not going to help.

With each payment, your credit will start to improve. Leave those credit cards alone. Just put one payment in front of the other, and before you know it, you’ll have beautiful credit. Super extraordinary stuff. There’s no real secret to it, it’s all just perseverance.

Going Down: 4 Ways to Destroy Your Home’s Value

Going Down: 4 Ways to Destroy Your Home’s Value

You’re a homeowner now, you can kiss bland uniformity goodbye the moment you turn your apartment keys over to your now former landlord. The world is your canvas — at least, that part of the world that you now are obligated to pay a monthly mortgage payment on — and you’re the artist that’ll mold it into a shape that tantalizes and delights the senses.

You may have big dreams for that new home, but cool your jets. This is a time for careful consideration, not for hastily scribbled modern design notes on cocktail napkins. Although there are certainly changes you can make that will update or upgrade your new home, there are others that can potentially devastate its value. This is no small thing.

If you thought that ugly entryway light fixture was a real turn-off, just read on to learn about things potential buyers will find extremely unappealing down the road.

There’s Good, There’s Bad and There’s Ugly

Every homeowner will leave a mark on the homes they own, this is an inevitable fact of life. The only question you need to ask yourself is if your mark will be a good one. Will you be the homeowner who planted the gorgeous maple tree that eventually turns into a beloved climbing tree or are you the one that glued neon green shag carpet to the hardwood floors?

We’ve made a short list of some of the most dramatic ways to destroy your home’s value without even trying all that hard so you can, hopefully, avoid these problems when you go to sell. Now, this is an important point to note: if you’re in your forever home, go hog wild. If you don’t need to sell that puppy ever, feel free to do whatever thrills you. Just be aware that your outlandish choices could prevent things like refinances and even reverse mortgages down the road.

Having made those disclosures, let’s talk about home value destroying projects!

4 Things That Can Lower Your Home’s Resell Value

Now that you own a house, people will be giving you all sorts of weird advice. You’re going to have to learn to tune it out, because generally, random people don’t know. Most people own two or three homes in their lives, which doesn’t give them a whole lot of experience with market values and making upgrades that will make a house really pop.

Realtors, general contractors and other home pros, on the other hand, make it their business to know what’s just in vogue and what’s a classic, evergreen sort of modification that will stand the test of time. These are the people to ask when you really need a second set of eyes.

But, before you even get that far, let’s count down some of the worst ideas for your new home.

#4 Really Personalizing the Place

Look, we know you’re eager to make your house your own. But step away from the lime green wallpaper and the orange tiles. Just for a minute. Think this through. Some buyers can see past over-personalization, others simply cannot. There’s a reason Realtors used to advise sellers to paint everything beige, it creates a blank pallet for a buyer to start from.

If you want to use quirky wallpaper, choose something that’s easy to remove when you go to sell. You may want to choose a tile that is mostly neutral and scatter those orange ones in just here and there like confetti. In short, tone it down a bit. However, feel free to paint to your heart’s desire — just plan to repaint before you put the house on the market.

When a buyer walks into your home, the first impression they have informs every other thought they have as they walk through. They’re simultaneously calculating two things in their heads: “How much can I afford to pay for this house?” and “How much will I have to pay to fix this place?” Each intolerable thing they encounter, like that orange tile, is another thing that goes in the repair budget. As it grows, the price they’re willing to pay shrinks.

Oh, you left the flamingo wallpaper in your bedroom? The repair budget’s getting pretty heavy. And these are just the immediately visible things, they haven’t yet gotten to the inspection period. The point here is: do you, but do it in a way that can be reversed before anyone shows the house.

#3. Converting the Garage to Anything Else

There’s a difference between using your garage as a gym and making it a gym permanently. When it’s a permanent gym, you can’t push some stuff out of the way and pull the car in real quick to get it out of the rain. In fact, you probably don’t even have a garage door anymore!

Many people have made this hasty decision, turning their garages into master suites, home gyms, playrooms and home offices, not considering the long term ramifications. Then, after dumping thousands of dollars into the project, they find out that it’s extremely difficult to resell their home.

No matter how professionally the conversion was done (and some are done very well), the buyer says to themselves, “Where am I going to stash my lawnmower?” Even if the yard’s a postage stamp, it’s a valid question.

Buyers come into a transaction with a certain set of expectations and, frankly, when they’re looking at houses in certain areas or certain prices that typically come with garages, it sort of breaks their brains to find one that doesn’t quite fit the model. That’s the beginning of the price chopping spiral. Eventually you’ll discount the house much more than you ever intended or just give up on selling and rent it out or not move at all.


#2. Tearing Down (Some) Walls

This one is actually not a hard and fast rule. There are sometimes walls that should come out. But don’t make this call without consulting with an architect or a general contractor because there are several things to consider, including the structural integrity and flow of the home.

The walls that you definitely should never tear out are the ones that reduce bathroom or bedroom number, unless you have something like five or more beds and three or more baths. At that point, you have a little wiggle room. As long as you maintain the American standard of a three bedroom, two bath home (or whatever is standard in your neighborhood), you’re probably ok.

However, turning a three bedroom home into a two bedroom home because you wanted to expand a bedroom is a value killer. If you think about it from a market perspective, it might make a bit more sense. A larger, or more mature, family is most likely to buy a three bedroom home. They’re going to have a bigger budget because there are two incomes, they need more partitioned spaces because there are possibly teenagers involved.

The same house with the same square footage, but with two bedrooms, is more likely to be shown to young families with small children, possibly only one income while one parent stays home to raise the toddlers, or even single people. Their budgets are smaller, which means that the two bedroom market simply doesn’t support the higher prices of the three bedroom market.

When your home is appraised, your appraiser will be pulling comparable homes based on things like neighborhood, square footage and numbers of bedrooms and baths. So, if the other two bedroom homes are selling for $30k less than three bedrooms, that means yours is going to appraise somewhere well below where you might expect, maybe even below what you paid for it.

Bottom line: Don’t knock out walls without professional consultations with your Realtor and an architect or general contractor at minimum so you can understand the full impact of this decision.

#1. Unprofessional DIY Repairs

There are two kinds of DIYers: those with significant trade experience and those without. If your main qualifications involve eighth grade shop class, you probably should not try to handle any big jobs on your own. Start small and work your way up, watch lots of YouTube videos, practice on test materials that don’t affect your home and for the sake of your house and your financial future, recognize and accept when you’re in over your head.

A home pro is often less expensive than you might imagine if you just call them in first. When they’re asked to clean up a bad repair and still make the original correction, it can cost a lot extra.

Finding these sorts of obvious DIY repairs in a home is a terrifying prospect for potential buyers. When they see them, they wonder what else you’ve tried to repair on your own. Did you rewire the electrical box? Is the house going to burn down in the night because you did something to the HVAC?

Because they don’t know you or your level of competency, they just see that one botched repair and hyperfocus on it until they either run away or submit an offer significantly lower than what you were expecting.

Popcorn Ceilings?!

Popcorn Ceilings?!

Popcorn is great for lots of stuff. You can enjoy a big bucket with family and friends while at the movies, string it on a thread to give Christmas that old-fashioned touch and even turn it into questionable “treats” for Halloween. One place that it’s a lot less welcome is on the ceiling.

Unfortunately, too many homes still have popcorn ceilings. They often create a lot more questions than they answer.

HOUSE CARE CALENDAR:  A Seasonal Guide to Maintaining Your Home

HOUSE CARE CALENDAR: A Seasonal Guide to Maintaining Your Home

rom summer vacations to winter holidays, it seems each season offers the perfect excuse to put off our to-do list. But be careful, homeowners: neglecting your home’s maintenance could put your personal safety—and one of your largest financial investments—at serious risk.

Real Estate 2018: What to Expect

Real Estate 2018: What to Expect

Real Estate 2018: What to Expect

15 Mar 2018  by David LaVallee

Real Estate 2018: What to Expect

As we head into a new year, the most common question we receive is, “What’s the outlook for real estate in 2018?”

It’s not just potential buyers and sellers who are curious; homeowners also want reassurance their home’s value is going up. The good news is that a strong U.S. economy, coupled with low unemployment rates, is expected to drive continued real estate growth in 2018. However, changes on the horizon could significantly impact you if you plan to buy, sell or refinance this year.

The Home Buyer’s Guide to Getting Mortgage Ready

The Home Buyer’s Guide to Getting Mortgage Ready

The Home Buyer’s Guide to Getting Mortgage Ready

15 Mar 2018  by David LaVallee

Don’t wait until you’re ready to move to start preparing financially to buy a home.

If you’re like the vast majority of home buyers, you will choose to finance your purchase with a mortgage loan. By preparing in advance, you can avoid the common delays and roadblocks many buyers face when applying for a mortgage.

The requirements to secure a mortgage may seem overwhelming, especially if you’re a first-time buyer. But we’ve outlined three simple steps to get you started on your path to homeownership.

Even if you’re a current homeowner, it’s a good idea to prepare in advance so you don’t encounter any surprises along the way. Lending requirements have become more rigorous in recent years, and changes to your credit history, debt levels, job type and other factors could impact your chances of approval.

It’s never too early to start preparing to buy a home. Follow these three steps to begin laying the foundation for your future home purchase today!