You Credit Score- How's Your FICO?
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage comes down to just one number.
This score is built by credit agencies. These agencies use the payment history from all of your loans: credit cards, mortgages, car loans and the like.
Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following factors in calculating a score:
- Your Credit History - How long have you had credit?
- Payment History - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you have? How much do you owe?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are assigned weights based on the formula being used. The result is a single number: your credit score. Credit scores can be as low as 300 and as high as 800. Higher is better. Most home buyers probably find their FICO scores falling 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. Lenders give lower interest rates to individuals with higher scores.
Improving your score
What can you do to raise your FICO score? Very little in the short term. Because the credit score is based on a lifetime of credit history, it's hard to make a significant improvement in the score with quick fixes. (Of course you can and should appeal incorrect items on your credit report.)
Know your FICO score
Before you can improve your credit score, you must obtain your score and ensure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. Also available are information and tools that can 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 the three major agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about your credit score? Call us at (281) 778-0805.