You Credit Score- How's Your FICO?
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage comes down to just one number.
Credit reporting agencies use your history of paying all types of loans to create this score.
Each of the three credit reporting agencies has its own formula for building your 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following in building a credit score:
- Credit History - Have you had credit for years, or for a short time?
- History of Payments - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly from one agency to another. Credit scores range from 300 to 800. Higher is always better. Most home buyers in the current environment have a score above 620.
Credit scores make a big difference in your interest rate
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
What can you do to raise 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 can and should remove incorrect data on your credit report.)
Know your FICO
Before you can improve your score, you must get your score and ensure that the reports from each credit 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 get your FICO score from all three reporting agencies, along with your credit report. They also provide information and online tools that can help you understand how to improve your FICO score.
You can get a 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 one is fast and inexpensive.
Now that you have all the facts, you will 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 at 7072522700.