How's your FICO Score?
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage boils down to a single number.
The FICO score is compiled by credit agencies. They use the payment history of all of your loans: credit cards, mortgages, car loans and others.
The three agencies use slightly different formulas to build a credit score. The original FICO model 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 these methods vary from one agency to another, all of the agencies use the following to build your credit score:
- Credit History - How long have you had credit?
- History of Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you have? How much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. Credit scores range from 300 to 800. Higher is better. Most people getting a mortgage loan have a score above 620.
Not just for qualifying
FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my credit score?
How can you raise your credit score? So called "credit repair" companies advertise quick fixes, but the FICO score is based on your lifetime credit history, so it's not possible to raise it significantly in the short term. You should appeal for the credit agency to remove any incorrect reporting from your credit report; this is really the only "quick fix" for credit problems.
Know your FICO score
Before you can improve your credit score, you have to know your score and be sure that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the original FICO score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. Also available are helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report once per year from the three major 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'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about credit scores? Give us a call: 8102292820.