Scoring your Credit - How's your FICO?
Because our society is so automated, it's probably not that surprising that your ability to repay your mortgage comes down to a single number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO score was developed by Fair Isaac and Company.
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, each agency uses the following to determine your credit score:
- Credit History - How long have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
- 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. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most people getting a mortgage loan these days have a score above 620.
Not just for qualifying
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.
Can I raise my credit score?
What can you do to improve your FICO score? Very little in the short term. Since the score is entirely based on your lifelong credit history, it's difficult to make a significant change in the score with quick fixes. You must, of course, appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only "quick fix" for credit troubles.
Getting your FICO score
Before you can improve your FICO score, you have to obtain your score and ensure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can get your FICO from all three agencies, along with your credit report. 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. 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.
Curious about your FICO score? Give us a call at 561-395-4264.