Scoring your Credit - How's your FICO?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage comes down to just one number.
The FICO score is created by credit agencies. These agencies use the payment history from your various loans: credit cards, mortgages, car/boat loans and others.
All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. Fair Isaac and Cooriginally developed this score. .
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, the differences aren't huge; all of the agencies use the following to build a credit score:
- Credit History - How many years have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which varies slightly from one agency to another. FICO scores range from 300 to 800. Higher scores are better. Most home buyers have a score above 620.
FICO makes a huge difference in interest rates
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
Is there any way to raise your FICO score? Since the score is entirely based on your lifelong credit history, it is hard to change it quickly. You should, of course, remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.
Know your FICO score
In order to improve your score, you've got to get the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the first FICO score, offers credit scores on myFICO.com. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. They also provide information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a year from the three major agencies by visiting AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about your FICO score? Call us at 9043423622.