You Credit Score: How's Your FICO?
Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number.
The FICO score is compiled by credit reporting agencies. They use the payment history of all of your loans: mortgages, car/motorcycle loans, credit cards, and others.
The three reporting agencies use slightly different formulas to build 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 these methods vary from one agency to another, each agency uses the following to build your credit score:
- Your Credit History - How long have you had credit?
- Payment History - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe on them?
- 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 results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers likely find their FICO scores falling above 620.
FICO makes a huge difference in your interest rate
Did you know? 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.
Raising your credit score
What can you do to improve your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is formulated from your lifelong 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 on your credit report, which is the only way to quickly improve your credit score.
How do I find out my credit score?
Before you can improve your FICO score, you must know your score and ensure that the credit 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 as well as credit reports from all three agencies. Also available are information and online tools that can help you understand how to improve your credit score.
You can get a free credit report once a year from all three credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about your credit score? Call us at 425-508-9988.