How's your FICO 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.
The FICO score is created by credit agencies. These agencies use the payment history from all of your loans: credit cards, mortgages, car/boat loans and others.
Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building your credit 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 these methods vary, the differences aren't huge; all of the agencies use the following to build your score:
- Your Credit History - How long have you had credit?
- Late Payments - Do you pay your bills on time?
- Credit Card Balances - How many accounts? How much do you owe on your accounts?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are weighted slightly differently depending on which formula the agency uses. 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 scores are better. Most home buyers these days have a score above 620.
Your score affects your interest rate
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.
Can I raise my credit score?
What can you do to improve your FICO score? Very little in the short term. Because the FICO score is entirely based on your lifelong credit history, it is difficult to change it quickly. You should remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.
Know your FICO score
Before you can improve your score, you must get 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 to get your FICO score from all three reporting agencies, along with your credit report. They also provide information and online tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a 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.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about credit scores? Give us a call: 214-300-8756.