You Credit Score: How's Your FICO?
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan comes down to just one number.
This score is compiled by credit reporting agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat loans and others.
The three reporting agencies use slightly different formulas to build a credit score. The original FICO model was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, all of the agencies use the following to determine your credit score:
- Credit History - How long have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which may vary a a little by agency. FICO scores range from 300 to 800. Higher is better. Most home buyers likely find their credit scores between 620 and 800.
Credit scores make a difference in interest rates
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the score is based on your lifelong credit history, it is hard to significantly improve the number with quick fixes. (Of course you must appeal incorrect items on your credit report.)
Getting your FICO score
Before you can improve your credit score, you have to know your score and be sure that the reports from each agency are correct. Fair Isaac, the company that offered the first FICO credit score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three reporting agencies. They also provide information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report once a year from the three major agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Want to know more about your FICO score? Give us a call at 3103737406.