How's your FICO Score?
Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number.
Credit reporting agencies use your history of paying loans in order to create a FICO score.
Equifax, TransUnion, and Experian, the three major credit agencies, each have their own proprietary 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 the formulas vary, the differences aren't huge; they all use the following in calculating your score:
- Credit History - Have you had credit for many years, or for a short time?
- Payment History - Do you have any payments later than 30 days?
- Credit Card Balances - How many accounts do you hold, and how much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers will likely find their credit scores falling above 620.
FICO makes a big difference in your interest rate
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 improve my FICO score?
How can you raise your credit score? Since the FICO score is entirely based on a lifetime of credit history, it is hard to make a significant improvement in the number with quick fixes. You must remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.
Know your FICO score
To improve your score, you must get the credit reports that the agencies use to build it. Of course, you need the score as well. 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 along with reports from all three credit reporting agencies. Also available are helpful information and online tools that help you improve your credit score.
You can get a federally-mandated free credit report once per year from the three major credit reporting agencies when you visit 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 get the most favorable mortgage.
Want to know more about credit scores? Call us: (303) 650-9400.