Good Credit Is Step One for Buyers - What's a FICO Score?

Potential home buyers inevitably must confront their credit scores.

Here’s a primer for those who have never faced the issue before:

A credit score, commonly known as a FICO score, is derived from a history of taking on debt and paying it off.

FICO scores range between 300 and 850, with the highest reflecting the best credit risk. The median FICO score nationally is around 720-723, according to Fair Isaac, the company for which FICO scores are named.

Except for a first-time buyers or those who have a large down payment, lenders will want to see a FICO score of 680 or higher, says Robert Satnick, chairman of the California Mortgage Bankers Association.

The credit factors that determine the score are:

Payment history = 35%
Debt = 30%
The mix of credit and installment = 10%
Length of credit history = 15%
Recent application of new credit = 10%

Source: The Associated Press, Alex Veiga (07/21/2008)