FICO - Your Credit Score
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage boils down to just one number.
Credit reporting agencies use your payment history to compile your FICO score.
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 these methods vary, the differences aren't huge; each agency uses the following factors to build your credit score:
- Credit History - How long have you had credit?
- Late Payments - Have you paid more than 30 days late?
- Your Credit Card Balances - How many accounts? How much do you owe?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little from one agency to another. Credit scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.
Your FICO score affects your monthly payment
Did you know? 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 about your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must have incorrect items removed from your credit report.)
How do I find out my credit score?
To raise your credit score, you've got to obtain the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company that invented the original FICO credit score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. Also available are helpful information and online tools that can help you understand how to improve your FICO score.
You can get a federally-mandated free credit report once a year from all three credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.
Armed with this information, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about credit scores? Give us a call: (707) 252-2700.