How's your FICO Score?
Since we live in a computer-driven world, you're probably not surprised to hear that your ability to repay your mortgage boils down to a single number.
Credit reporting agencies use your history of paying loans to build this score.
Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have their own proprietary formula for building your credit score. Fair Isaac and Cooriginally developed this score. .
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary from one agency to another, the differences aren't huge; they all use the following factors to calculate a credit score:
- Your Credit History - Have you had credit for years, or for a short time?
- Late 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?
- Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?
These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers will likely find their FICO scores falling above 620.
Not just for qualifying
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 to raise 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 it's not possible to raise it significantly in the short term. You must, of course, remove any incorrect reporting on your credit report, which is the only "quick fix" for credit troubles.
Know your FICO score
In order to raise your score, you've got to get the credit 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, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. They also provide helpful information and tools that can help you understand how to improve your FICO score.
You can get a free credit report once per year from all three agencies at AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about your credit score? Call us at 5613734149.