How's your FICO Score?
Since we live in an automated, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number.
The FICO score is built by credit agencies. They use the payment history from your various loans: credit cards, mortgages, car/boat loans and the like.
The three reporting agencies use slightly different formulas to build a 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to determine a credit score:
- Credit History - How many years have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most folks getting a mortgage have a score above 620.
Not just for qualifying
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.
Can I improve my FICO score?
What can you do to raise your FICO score? Very little in the short term. So called "credit repair" companies advertise quick fixes, but the FICO score is built on your lifetime credit history, so you can't turn it around right away. (Of course you must appeal incorrect items on your credit report.)
Know your FICO score
Before you can improve your score, you have to obtain your score and make sure that the reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. They also provide helpful information and online 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 every year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.
Armed with this info, you will 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: (707) 252-2700 or email dale@clgroup.net.