About the FICO Credit Score
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage boils down to just one number.
This score is built by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car loans 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following factors to calculate a credit score:
- Credit History - How many years have you had credit?
- Payment History - Do you pay your bills on time?
- Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
- 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. Credit scores can be as low as 300 and as high as 800. Higher is better. Most people who want to get a mortgage in the current environment score 620 or above.
FICO makes a 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. Lenders give lower interest rates to individuals with higher scores.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the FICO score is based on a lifetime of credit history, it is difficult to change it quickly. (Of course you can and should have incorrect items removed from your credit report.)
Getting your FICO score
Before you can improve your score, you must know your score and make sure that the credit reports from each credit reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. 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 a year from the three major credit reporting agencies at 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.
Armed with this info, 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 FICO score? Call us at 561-395-4264.