FICO - Your Credit Score
Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan boils down to a single number.
This score is compiled by credit reporting agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car loans and others.
Each of the three credit agencies has its own formula for building your credit score. The original FICO score was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary from one agency to another, the differences aren't huge; they all use the following in building your credit score:
- Credit History - How long have you had credit?
- History of Payments - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe on them?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
Each of these is assigned a value and a weight. Each formula produces a single number which may vary slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers in the current environment have a score above 620.
Your credit score greatly affects your monthly payment
Did you know? 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.
Raising your FICO score
What can you do to raise 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 reporting on your credit report; this is really the only way to quickly improve your credit score.
How do I find out my FICO score?
Before you can improve your credit score, you must obtain your score and make certain that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the original FICO score, sells FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. Also available are information and online tools that help you 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.
Curious about your credit score? Give us a call at 8132007931.