Scoring your Credit - How's your FICO?
Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage loan boils down to a single number.
This score is built by credit agencies. These agencies use the payment history from your various loans: credit cards, mortgages, car loans etcetera.
Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO model was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary from one agency to another, each agency uses the following to calculate your score:
- Credit History - Have you had credit for years, or for just a short time?
- History of Payments - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many accounts do you have, and how much do you owe on them?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers these days have a score above 620.
Not just for qualifying
Did you know? 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
What can you do to improve your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the score is calculated from your lifetime credit history, so you can't turn it around right away. You should appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.
How do I find out my FICO score?
In order 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, the company that invented the first FICO credit score, sells FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. Also available are helpful information and tools that can help you improve your FICO score.
You can get a free credit report once a year from the three major credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you'll 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: (281) 778-0805.