You Credit Score- How's Your FICO?
Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan comes down to a single number.
The FICO score is built by credit reporting agencies. They use the payment history from your various loans: credit cards, mortgages, car/boat loans and the like.
All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 your credit score:
- Credit History - Have you had credit for years, or for a short time?
- Payment History - Do you pay your bills on time?
- Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted slightly differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly by agency. FICO scores range from 300 to 800. Higher scores are better. Most home buyers in the current environment have a score above 620.
Not just for qualifying
FICO 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.
Improving your score
How can you improve your FICO score? Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should have incorrect items removed from your credit report.)
Know your FICO score
In order to improve your credit score, you must get the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. They also provide helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report once per year from the three major credit reporting agencies at 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? Give us a call: 954.920.9799.