FICO - Your Credit Score
Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan boils down to just one number.
The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. .
Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While the formulas vary from one agency to another, each agency uses the following to build your score:
- Credit History - Have you had credit for years, or for just a short time?
- History of Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts do you hold? How much do you owe on your accounts?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
Each of these factors is assigned a value and a weight. Each formula produces a single number which varies slightly from one agency to another. Credit scores range from 300 to 800. Higher is always better. Typical home buyers will probably find their credit scores falling above 620.
FICO makes a big difference in your interest rate
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.
Raising your FICO score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must appeal incorrect items on your credit report.)
Getting your FICO score
Before you can improve your FICO score, you must obtain your score and be sure that the credit reports from each agency are correct. Fair Isaac, the corporation that invented the original FICO score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. They also provide information and online tools that can help you improve your credit score.
You can get a free credit report once a year from the three major agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about your credit score? Call us: (310) 373-7406.