You Credit Score- How's Your FICO?
Since we live in an automated, it should come as no surprise that your ability to repay virtually any loan comes down to one number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
The three credit reporting 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 the formulas vary, all of the agencies use the following to build a credit score:
- Your Credit History - How many years have you had credit?
- Payment History - Have you paid more than 30 days late?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are weighted differently depending on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers have a score above 620.
FICO makes a huge difference in 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.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.
Know your FICO
Before you can improve your score, you have to know your score and make sure that the credit reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells scores on its website: myFICO.com. It's inexpensive to get your FICO from all three agencies, along with your credit report. They also provide information and tools that can help you improve your credit score.
You can get a free credit report every year from all three agencies by visiting 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 will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Want to know more about credit scores? Give us a call at 562 320-0510.