About the FICO Credit Score
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage comes down to a single number.
Credit reporting agencies use your loan payment history to compile this score.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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, the differences aren't huge; they all use the following in building your credit score:
- Your Credit History - How many years have you had credit?
- History of Payments - Do you have a history of late payments?
- Your Credit Card Balances - How many accounts? How much do you owe?
- Inquiries on Your Credit - 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 slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers probably find their scores falling above 620.
Your credit score greatly affects your monthly payment
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.
Raising your credit score
Is it possible to 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 on your credit report, which is the only "quick fix" for credit troubles.
Getting your credit score
To improve your credit score, you've got to get the reports that are used 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 helpful information and tools that help you understand how to improve your credit score.
You can get a free credit report every year from all three 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.
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.
Want to know more about credit scores? Give us a call at (904) 342-3622.