How's your FICO Score?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage comes down to a single number.
The FICO score is created by credit agencies. These agencies use the payment history of your various loans: mortgages, car/motorcycle/boat 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. 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, each agency uses the following to build your credit score:
- Credit History - How long have you had credit?
- Payment History - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many accounts do you have, and how much do you owe on them?
- Credit Inquiries - How many times have lenders pulled your credit report 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 range from 300 to 800. Higher is better. Most home buyers these days have a score above 620.
Credit scores make a difference in your interest rate
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my credit score?
What can you do about your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the score is calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You should, of course, appeal for the credit agency to remove any incorrect data from your credit report; this is really the only way to quickly improve your credit score.
Know your FICO
Before you can improve your credit score, you have to know your score and make sure that the 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 quickly get your FICO score from all three agencies, along with your credit report. Also available are information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report once per year from all three credit reporting 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.
Curious about your FICO score? Call us at (813) 200-7931.