How's your FICO Score?
Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan boils down to a single number.
Credit reporting agencies use your loan payment history to build your FICO score.
Experian, TransUnion, and Equifax, the three major credit agencies, each have a proprietary formula for building your credit score. The original FICO model was developed by Fair Isaac and Company.
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; they all use the following to calculate a 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 do you carry? How much do you owe on your accounts?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The result is a single number: your credit score. FICO scores can be as low as 300 and as high as 800. Higher is better. Most borrowers getting a mortgage score 620 or above.
Your score affects your interest rate
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
Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the FICO score is based on your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you must remove incorrect data on your credit report.)
How do I find out my FICO score?
Before you can improve your score, you must obtain your score and make certain that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that offered the original FICO credit score, sells scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. They also provide information and online tools that can help you improve your FICO score.
You can get a federally-mandated free credit report once a year from the three major agencies by visiting AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.
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.
Want to know more about your credit score? Call us: (541) 683-3300.