You Credit Score: How's Your FICO?
Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage comes down to just one number.
This score is compiled by credit agencies. They use the payment history of your various loans: credit cards, mortgages, car loans etcetera.
Each of the three credit reporting 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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following to build a credit score:
- Credit History - How long have you had credit?
- History of 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 on your accounts?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers will probably find their scores between 620 and 800.
Your credit 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.
Raising your credit score
Is it possible to improve your credit score? Despite what you hear from "credit repair" companies, the score is calculated from your lifelong credit history, so you can't turn it around right away. You should remove any incorrect data from your credit report; this is the only "quick fix" for credit problems.
Getting your FICO score
Before you can improve your score, you have to know your score and make certain that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that offered the first FICO score, offers FICO scores on myFICO.com. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. Also available are helpful information and online tools that help you understand how to improve your FICO score.
You can get a federally-mandated free credit report once per year from the three major credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free credit 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.
Want to know more about credit scores? Give us a call: 5623200510.