FICO - Your Credit Score
Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage comes down to just one number.
This score is created by credit agencies. These agencies use the payment history from your various loans: credit cards, mortgages, car loans etcetera.
The three agencies use slightly different formulas to build a credit score. The original FICO model 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, the differences aren't huge; each agency uses the following factors in building your score:
- Credit History - How long have you had credit?
- Payment History - Do you pay your bills on time?
- Balances on your Credit Cards - How many credit card 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?
Each of these is assigned a value and a weight. Each formula produces a single number which may vary slightly by agency. FICO scores range from 300 to 800. Higher is better. Most home buyers these days have a score above 620.
FICO makes a difference in interest rates
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
How can you raise your credit score? Because the score is based on a lifetime of credit history, it's very hard to change it quickly. (Of course you must appeal incorrect items on your credit report.)
Getting your credit score
To raise your credit score, you must obtain the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the first FICO score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide information and tools that help you improve your credit score.
You can get a free credit report once a year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.
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.
Curious about your FICO score? Call us: 3038627760.