You Credit Score- How's Your FICO?
Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage comes down to a single number.
Credit reporting agencies use your payment history to compile your FICO score.
Each of the three credit reporting agencies has its own formula for building your 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; each agency uses the following in calculating a score:
- Credit History - How long have you had credit?
- History of Payments - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers probably find their FICO scores falling between 620 and 800.
Not just for qualifying
Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Can I raise my credit score?
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit 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.)
Know your FICO
To improve your FICO score, you've got to get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company that offered the original FICO credit score, offers FICO scores on its website: myFICO.com. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. Also available are helpful information and tools that help you improve your credit score.
You can get a federally-mandated free credit report every year from all three agencies when you visit 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.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about credit scores? Call us: (303) 650-9400.