FICO - Your Credit Score
Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage comes down to a single number.
The FICO score is compiled by credit reporting agencies. These agencies use the payment history from all of your loans: credit cards, mortgages, car/boat loans and the like.
Each of the three credit reporting agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. .
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, each agency uses the following to determine your score:
- Credit History - How many years 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, and how much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted slightly differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Most home buyers in the current environment have a score above 620.
Your credit score affects your monthly payment
Did you know? 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.
Raising your FICO score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is entirely based on your lifelong credit history, it's very hard to change it quickly. (Of course you must have incorrect items removed from your credit report.)
Getting your FICO score
In order to raise your credit score, you've got to have the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that invented the original FICO credit score, sells FICO scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. Also available are helpful information and tools that can help you understand how to improve your credit score.
You can get a free credit report every year from the three major credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about your credit score? Give us a call: 866-840-8745 x2.