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 just one number.
The FICO score is built by credit agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and others.
The three reporting agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. .
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, all of the agencies use the following to build a score:
- Credit History - How many years have you had credit?
- History of Payments - Have you paid more than 30 days late, and how often?
- Balances on your Credit Cards - How many credit card accounts do you have, 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 factors is assigned a value and a weight. Each formula produces a single number which varies slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers have a score above 620.
FICO makes a difference in interest rates
Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is calculated from your lifetime credit history, so you can't turn it around right away. (Of course you can and should have incorrect items removed from your credit report.)
Getting your FICO score
Before you can improve your score, you have to know your score and make sure that the reports from each agency are correct. Fair Isaac, the company that offered the first FICO score, offers scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. They also provide information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a year from the three major credit reporting agencies at AnnualCreditReport.com. These reports do not include a free credit 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 your credit score? Call us at 561-865-7488.