About the FICO Credit Score
Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage comes down to just one number.
This score is compiled by credit agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle loans, credit cards, and the like.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO 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; all of the agencies use the following factors to calculate your credit score:
- Credit History - How long have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you 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 can be as low as 300 and as high as 800. Higher is always better. Most borrowers getting a mortgage loan these days have a score above 620.
FICO makes a big difference in your interest rate
Did you know? FICO 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.
Raising your credit score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is based on your lifelong credit history, it is hard to change it quickly. (Of course you must remove incorrect data on your credit report.)
Getting your FICO score
Before you can improve your FICO score, you must obtain your score and be sure 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 agencies, along with your credit report. Also available are helpful information and online tools that help you understand how to improve your credit score.
You can get a federally-mandated free credit report once per year from the three major agencies by visiting 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'll 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? Call us: 6507631924.