FICO - Your Credit Score
Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number.
All the years you've been paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO score was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary from one agency to another, each agency uses the following to build your score:
- Your Credit History - Have you had credit for many years, or for just a short time?
- Late Payments - Do you have a history of late payments?
- Your Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
- Requests for Credit - How many times have you had your credit checked for a loan?
Each of these is assigned a value and a weight. The result is one number. Credit scores range from 300 to 800. Higher scores are better. Most folks getting a mortgage score 620 or above.
Not just for qualifying
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 credit score
Is it possible to improve your FICO score? Despite what you hear from "credit repair" companies, the score is formulated from your lifetime credit history, so you can't turn it around right away. You must remove any incorrect reporting on your credit report; this is really the only "quick fix" for credit problems.
Getting your FICO score
In order to raise your score, you must have the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company that invented the first FICO credit score, offers scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide helpful information and tools that can help you improve your credit score.
You can get a federally-mandated free credit report once per year from the three major agencies at 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.
Want to know more about credit scores? Give us a call: 866-840-8745 x2.