How's your FICO Score?
Since we live in an automated world, it's not surprising that your ability to repay your mortgage comes down to a single number.
All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
The three agencies use slightly different formulas to build a credit score. The original FICO was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, each agency uses the following to build a credit score:
- Your Credit History - Have you had credit for many years, or for just a short time?
- Payment History - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
- Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?
Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little by agency. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers these days have a score above 620.
FICO makes a difference in interest rates
Did you know? Credit 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.)
Know your FICO
Before you can improve your score, you must get your score and make certain 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 as well as reports from all three reporting agencies. They also provide 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 once a year from all three agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
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 your credit score? Give us a call at 949-544-4908.