FICO - Your Credit Score
Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan boils down to a single number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
TransUnion, Equifax, and Experian, the three major credit agencies, each have a proprietary 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, all of the agencies use the following to determine a score:
- Credit History - How many years have you had credit?
- Payment History - Do you have any payments later than 30 days?
- Credit Card Balances - How many accounts do you hold, and how much do you owe on them?
- Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?
These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary slightly by agency. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers in the current environment have a score above 620.
Credit scores make a huge difference in your interest rate
Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Raising your FICO 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. (Of course you must have incorrect items removed from your credit report.)
Getting your FICO score
To raise your score, you must get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO score from all three agencies, along with your credit report. They also provide 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. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Want to know more about credit scores? Call us at 561-395-4264.