Scoring your Credit - How's your FICO?
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan comes down to a single number.
All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
The three agencies use slightly different formulas to build a 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 in calculating a credit score:
- Credit History - Have you had credit for years, or for just a short time?
- Late Payments - Do you have a history of late payments?
- Your Credit Card Balances - How many accounts do you hold, and how much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. Each formula produces a single number which varies slightly by agency. Credit scores range from 300 to 800. Higher scores are better. Typical home buyers probably find their FICO scores above 620.
Your FICO score affects your interest rate
Did you know? FICO 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.
Can I raise 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 calculated from your lifelong credit history, so you can't turn it around right away. (Of course you must appeal incorrect items on your credit report.)
Know your FICO
Before you can improve your score, you have to know your score and be sure that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that invented the original FICO score, sells FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide information and online tools that help you understand how to improve your credit score.
You can get a federally-mandated free credit report once per year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.
Armed with this information, 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? Give us a call at 5613734149.