About the FICO Credit Score
Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage boils down to a single number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building your credit score. The original FICO score was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, the differences aren't huge; all of the agencies use the following factors in calculating your score:
- Credit History - How many years have you had credit?
- Late Payments - Do you pay your bills on time?
- Credit Card Balances - How many accounts? How much do you owe on your accounts?
- 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 results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.
FICO makes a huge difference in interest rates
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
Is there any way to improve your FICO score? Because the FICO score is based on a lifetime of credit history, it's hard to significantly improve the number with quick fixes. You must appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.
Know your FICO score
Before you can improve your score, you have to get your score and make sure that the credit reports from each agency are correct. Fair Isaac, the corporation that offered the first FICO score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. They also provide information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report every year from the three major 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.
Armed with this information, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about credit scores? Call us: (800) 288-9693.