You Credit Score: How's Your FICO?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to just one number.
Credit reporting agencies use your history of paying loans to build this score.
TransUnion, Equifax, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit score. The original FICO score was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary from one agency to another, the differences aren't huge; they all use the following factors to build a credit score:
- Credit History - Have you had credit for many years, or for a short time?
- Payment History - Have you paid more than 30 days late?
- Your Credit Card Balances - How many accounts? How much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary slightly from one agency to another. Credit scores range from 300 to 800. Higher is better. Most home buyers will likely find their credit scores between 620 and 800.
Your score affects your monthly payment
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.
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. You should appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.
Getting your FICO score
In order to improve your FICO score, you must have 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, fast, and easy to get your credit score as well as reports from all three agencies. Also available are helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report every year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.
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: 561-395-4264.