About the FICO Credit Score
Since we live in an automated society, it's not surprising that your ability to repay your mortgage boils down to just one number.
The FICO score is compiled by credit agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car/boat loans and the like.
Each of the three credit reporting agencies has its own formula for building your credit 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 these methods vary, all of the agencies use the following to calculate a credit score:
- Credit History - How many years have you had credit?
- Payment History - Have you paid more than 30 days late?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
- Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers likely find their scores falling above 620.
Not just for qualifying
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my credit score?
Is there any way to raise your FICO score? Since the credit score is entirely based on your lifelong credit history, it is hard to change it quickly. (Of course you can and should appeal incorrect items on your credit report.)
How do I find out my FICO score?
In order to improve your FICO score, you must obtain the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that offered the original FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three reporting agencies. Also available are information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report every year from the three major agencies by visiting AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.
Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Want to know more about credit scores? Give us a call at 7084035181.