How's your FICO Score?
Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan boils down to a single number.
All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Equifax, TransUnion, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit score. The original FICO was developed by Fair Isaac and Company.
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, the differences aren't huge; they all use the following factors to calculate your score:
- Credit History - How many years have you had credit?
- Late Payments - 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?
- Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?
These factors are weighted a little bit differently depending on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is better. Most home buyers will likely find their scores between 620 and 800.
FICO makes a difference in interest rates
Did you know? Credit 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
What can you do to improve your FICO score? Unfortunately, not much. Because the credit score is entirely based on your lifelong credit history, it is hard to significantly improve the score with quick fixes. You must remove any incorrect reporting on your credit report; this is the only way to quickly improve your credit score.
Know your FICO
To improve your FICO score, you must get the reports that are used to build it. Of course, you need the score as well. 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. They also provide information and online tools that can help you understand how to improve your credit score.
You can get a free credit report every year from all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about your FICO score? Give us a call: 8668408745.