You Credit Score- How's Your FICO?
Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan boils down to a single number.
Credit reporting agencies use your loan payment history in order to build a FICO 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.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, all of the agencies use the following to calculate your score:
- Credit History - How many years have you had credit?
- Late 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?
Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is always better. Most home buyers these days have a score above 620.
Your credit score greatly affects how much you pay in interest every month
FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
What can you do to improve your FICO score? Very little in the short term. So called "credit repair" companies advertise quick fixes, but the score is based on your lifetime credit history, so you can't turn it around right away. (Of course you must appeal incorrect items on your credit report.)
Getting your credit score
To raise your score, you've got to have the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the original FICO credit score, sells credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. Also available are information and online tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report every 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 quick and very inexpensive.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about your FICO score? Call us at 4104614043.