How's your FICO Score?
Since our society is so computer-driven, it's probably not that surprising that your ability to repay virtually any loan comes down to one number.
This score is built by credit reporting agencies. They use the payment history of your various loans: credit cards, mortgages, car loans and the like.
Each of the three credit agencies has its own 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 the formulas vary from one agency to another, the differences aren't huge; they all use the following in calculating your score:
- Credit History - How long have you had credit?
- Late Payments - Have you paid more than 30 days late?
- Your Credit Card Balances - How many accounts do you hold, and how much do you owe on them?
- Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?
Each of these is assigned a value and a weight. The result is a single number: your credit score. FICO scores range from 300 to 800. Higher is better. Most home buyers these days have a score above 620.
Your credit score greatly affects how much you pay in interest every month
FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
How can you improve your FICO score? So called "credit repair" companies advertise quick fixes, but the score is formulated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You should, of course, appeal for the credit agency to remove any incorrect data on your credit report; this is the only way to quickly improve your credit score.
Getting your credit score
Before you can improve your score, you must obtain your score and be sure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. They also provide information and tools that can help you improve your credit score.
You can get a free credit report every year from all three credit reporting agencies at 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 obtain the most favorable mortgage.
Curious about credit scores? Call us at 5416833300.