How's your FICO Score?
Since we live in an automated world, it's not surprising that your ability to repay your mortgage boils down to a single number.
The FICO score is created by credit agencies. They use the payment history of all of your loans: credit cards, mortgages, car loans and the like.
The three reporting agencies use slightly different formulas to build 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 these methods vary, the differences aren't huge; they all use the following to build a score:
- Your Credit History - How many years have you had credit?
- Payment History - Do you pay your bills on time?
- Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. Credit scores range from 300 to 800. Higher scores are better. Most home buyers have a score above 620.
FICO makes a huge difference in interest rates
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.
Raising your FICO score
What can you do about your FICO score? Unfortunately, not much. Because the score is entirely based on a lifetime of credit history, it is hard to significantly improve the number with quick fixes. (Of course you must appeal incorrect items on your credit report.)
How do I find out my credit score?
Before you can improve your FICO score, you must 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, fast, and easy to get your credit score as well as reports from all three agencies. They also provide information and tools that can help you improve your credit score.
You can get a federally-mandated free credit report once a year from the three major credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Armed with this information, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about credit scores? Call us at (813) 200-7931.