How's your FICO Score?
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to a single number.
The FICO score is compiled by credit reporting agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, and the like.
Each of the three credit agencies has its own formula for building your 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 these methods vary from one agency to another, the differences aren't huge; all of the agencies use the following factors to build a score:
- Your Credit History - Have you had credit for years, or for just a short time?
- History of Payments - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
- Requests for Credit - How many times have you had your credit checked for a loan?
Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers these days have a score above 620.
FICO makes a big difference in your interest rate
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.
Raising your FICO score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. 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 remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.
Know your FICO score
To raise your credit score, you've got to obtain the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the original FICO credit score, sells FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. Also available are helpful 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 once a year from the three major credit reporting agencies when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about your FICO score? Give us a call: 5613734149.