FICO - Your Credit Score
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage comes down to just one number.
This score is compiled by credit reporting agencies. They use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, etcetera.
Each of the three credit agencies has its own formula for building your 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 these methods vary, all of the agencies use the following to build a credit score:
- Your Credit History - Have you had credit for years, or for just a short time?
- Payment History - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most people who want to get a mortgage loan have a score above 620.
Your FICO score greatly affects your monthly payment
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.
Can I improve my FICO score?
What can you do about your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must, of course, appeal for the credit agency to remove any incorrect reporting on your credit report; this is the only "quick fix" for credit troubles.
Know your FICO
To improve your credit score, you must get the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. Also available are helpful information and tools that can help you improve your FICO score.
You can get a federally-mandated free credit report every year from the three major agencies when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Want to know more about your credit score? Call us at 425-508-9988.