How's your FICO Score?
Because our society is so computer-driven, you're probably not surprised to hear that your ability to repay virtually any loan boils down to one number.
All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
TransUnion, Equifax, and Experian, the three major credit agencies, each have a proprietary formula for building a credit score. Fair Isaac and Cooriginally developed this score. .
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, all of the agencies use the following to calculate your score:
- Credit History - Have you had credit for many years, or for just a short time?
- Late Payments - Do you pay your bills on time?
- Your Credit Card Balances - How many accounts do you hold, and how much do you owe?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are weighted a little bit differently depending on which formula the agency uses. The result is one number. FICO scores range from 300 to 800. Higher is better. Typical home buyers likely find their FICO scores falling between 620 and 800.
Your score affects your interest rate
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.
Improving your score
What can you do about your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, remove any incorrect data from your credit report, which is the only "quick fix" for credit troubles.
Getting your credit score
Before you can improve your credit score, you have to get your score and ensure that the reports from each agency are correct. Fair Isaac, the company that offered the original FICO score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. Also available are helpful information and online tools that help you understand how to improve your FICO score.
You can get a free credit report once per year from the three major credit reporting agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about credit scores? Give us a call: 214-300-8756.