About the FICO Credit Score
Since we live in an automated society, it's not surprising that your ability to repay your mortgage boils down to just one number.
Credit reporting agencies use your history of paying all types of loans in order to build this score.
Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO score was developed by Fair Isaac and Company.
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 these methods vary, the differences aren't huge; they all use the following to calculate a score:
- Your Credit History - Have you had credit for many years, or for just a short time?
- History of Payments - Have you paid more than 30 days late?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe on them?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is always better. Most people who want to get a mortgage loan in the current environment score 620 or above.
Your score affects your interest rate
Did you know? 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.
Improving your score
What can you do about your FICO score? Very little in the short term. Since the score is based on your lifelong credit history, it's hard to significantly improve the number with quick fixes. You must, of course, appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.
Know your FICO
Before you can improve your score, you must get your score and be sure that the reports from each reporting agency are correct. Fair Isaac, the corporation that invented the original FICO credit score, sells FICO scores on myFICO.com. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. They also provide helpful information and tools that help you understand how to improve your credit score.
You can get a federally-mandated free credit report every year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.
Armed with this info, 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 credit score? Call us at 3103737406.