How's your FICO Score?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to a single number.
This score is compiled by credit reporting agencies. They use the payment history from all of your loans: mortgages, car/motorcycle 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 score. Fair Isaac and Cooriginally developed this score. .
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, the differences aren't huge; each agency uses the following factors to build a score:
- Your Credit History - How many years have you had credit?
- History of Payments - Do you have a history of late payments?
- Credit Card Balances - How many accounts do you carry? How much do you owe on your accounts?
- Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most folks who want to get a mortgage loan these days have a score above 620.
FICO makes a difference in your interest rate
FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Raising your FICO score
What can you do to improve your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must remove incorrect data on your credit report.)
Know your FICO score
Before you can improve your FICO score, you must get your score and make sure that the credit reports from each agency are correct. Fair Isaac, the corporation that invented the original FICO credit score, sells FICO scores on its website: 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 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 credit reporting agencies at 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'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about credit scores? Call us: 3039317879.