How's your FICO Score?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to just one number.
Credit reporting agencies use your history of paying all types of loans in order to build your FICO score.
The three 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, the differences aren't huge; each agency uses the following factors in building a credit score:
- Your Credit History - How many years have you had credit?
- Payment History - Do you pay your bills on time?
- Credit Card Balances - How many accounts do you hold, and how much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
Each of these factors is assigned a value and a weight. The result is a single number: your credit score. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers these days have a score above 620.
FICO makes a big difference in your interest rate
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.
Improving your score
Is it possible to raise your FICO score? So called "credit repair" companies advertise quick fixes, but the FICO score is calculated from your lifelong credit history, so you can't turn it around right away. You must appeal for the credit agency to remove any incorrect data from your credit report; this is the only "quick fix" for credit problems.
Know your FICO score
Before you can improve your score, you must obtain your score and make sure that the reports from each credit reporting agency are correct. Fair Isaac, the corporation 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 reports from all three agencies. They also provide helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a year from all three credit reporting agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Armed with this information, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about your FICO score? Call us: (541) 683-3300.