Scoring your Credit - How's your FICO?
Since we live in an computer-driven 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, car payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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, each agency uses the following to calculate your credit score:
- Credit History - How many years have you had credit?
- Payment History - Have you paid more than 30 days late, and how often?
- Your Credit Card Balances - How many credit card accounts do you have, and how much do you owe?
- Requests for Credit - How many times have you had your credit checked for a loan?
Each of these factors is assigned a value and a weight. The result is one number. FICO scores range from 300 to 800. Higher is always better. Most borrowers getting a mortgage score 620 or above.
FICO makes a big difference in interest rates
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.
Improving your score
What can you do to improve your FICO score? Very little in the short term. Since the credit score is based on a lifetime of credit history, it is hard to significantly improve the number with quick fixes. You must appeal for the credit agency to remove any incorrect data on your credit report, which is the only "quick fix" for credit troubles.
How do I find out my FICO score?
Before you can improve your credit score, you must get your score and make certain that the reports from each agency are correct. Fair Isaac, the corporation that invented the original FICO score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide helpful information and tools that can help you understand how to improve your credit score.
You can get a federally-mandated free credit report every year from the three major agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about credit scores? Call us at (707) 252-2700.