How's your FICO Score?
Since we live in an automated, it's probably not that surprising that your ability to repay your mortgage loan comes down to one number.
The FICO score is created by credit agencies. They use the payment history of your various loans: mortgages, car loans, credit cards, etcetera.
Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building 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 your credit score:
- Credit History - How many years have you had credit?
- History of Payments - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Most borrowers getting a mortgage loan have a score above 620.
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. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Raising your FICO score
Is there any way to improve your credit score? Since the score is entirely based on your lifelong credit history, it is hard to make a significant improvement in the number with quick fixes. You must appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.
How do I find out my credit score?
To raise your FICO score, you've got to get the reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. They also provide helpful information and tools that can help you improve your credit score.
You can get a federally-mandated 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.
Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about your credit score? Call us: (541) 683-3300.