About the FICO 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 just one number.
This score is built by credit reporting agencies. These agencies use the payment history of your various loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.
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. .
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, all of the agencies use the following to determine your credit score:
- Your Credit History - Have you had credit for many years, or for just a short time?
- Payment History - Have you paid more than 30 days late?
- Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
- Requests for Credit - How many times have you had your credit checked for a loan?
Each of these factors is assigned a value and a weight. Each formula produces a single number which varies slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is better. Most home buyers these days have a score above 620.
Your credit score greatly affects your interest rate
Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.
Raising your FICO score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should remove incorrect data on your credit report.)
Know your FICO
Before you can improve your score, you must know your score and make sure that the reports from each agency are correct. 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 along with credit reports from all three reporting agencies. Also available are information and online tools that help you improve your FICO score.
You can get a free credit report every year from the three major credit reporting agencies at 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'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about your FICO score? Give us a call at 425-508-9988.