How's your FICO Score?
Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage boils down to just one number.
This score is compiled by credit agencies. They use the payment history from all of your loans: mortgages, car loans, credit cards, etcetera.
The three credit reporting agencies use slightly different formulas to build a 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, the differences aren't huge; they all use the following factors in calculating your score:
- Credit History - How many years have you had credit?
- History of Payments - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most folks who want to get a mortgage these days score 620 or above.
FICO makes a big difference in your interest rate
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my FICO score?
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifelong credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)
How do I find out my FICO score?
Before you can improve your score, you have to obtain your score and be sure that the reports from each reporting agency are correct. Fair Isaac, the company that invented the first FICO score, sells credit scores on its website: myFICO.com. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. They also provide information and online tools that help you understand how to improve your credit score.
You can get a free credit report once a year from the three major credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Armed with this information, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about credit scores? Give us a call at 3103737406.