How's your FICO Score?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to a single number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO was developed by Fair Isaac and Company.
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, the differences aren't huge; all of the agencies use the following in building your score:
- Your Credit History - How long have you had credit?
- Late Payments - Do you pay your bills on time?
- Your Credit Card Balances - How many credit card accounts do you hold, 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 result is a single number: your credit score. Credit scores range from 300 to 800. Higher is always better. Most home buyers have a score above 620.
FICO makes a big difference in your interest rate
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 a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my credit score?
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is based on your lifelong credit history, it's difficult to change it quickly. (Of course you must remove incorrect data on your credit report.)
Know your FICO
Before you can improve your credit score, you must obtain your score and be sure that the reports from each credit reporting agency are correct. Fair Isaac, the company that invented the original FICO credit score, sells scores on myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are information and online tools that can help you understand how to improve your credit score.
You can get a federally-mandated free credit report every year from all three credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free 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 obtain the most favorable mortgage.
Want to know more about credit scores? Give us a call at 2037296681.