How's your FICO Score?
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage boils down to a single number.
Credit reporting agencies use your history of paying all types of loans in order to compile a FICO score.
Experian, TransUnion, and Equifax, the three major credit agencies, each have a proprietary formula for building your 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:
- Your Credit History - How long have you had credit?
- History of Payments - Have you paid more than 30 days late, and how often?
- Balances on your Credit Cards - How many accounts do you hold? How much do you owe on your accounts?
- Credit Inquiries - How many times have you had your credit checked for a loan?
Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is better. Most people getting a mortgage loan these days score 620 or above.
Your 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.
Can I raise my credit score?
How can you improve your FICO score? 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 appeal incorrect items on your credit report.)
Getting your credit score
Before you can improve your score, you have to know your score and be sure that the reports from each reporting agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. They also provide helpful information and tools that help you improve your FICO score.
You can get a free credit report every year from the three major agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about credit scores? Give us a call: (478) 746-2063.