How's your FICO Score?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan boils down to just one number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit reporting agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. .
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, all of the agencies use the following to determine your credit score:
- Credit History - How long have you had credit?
- 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 for the purpose of giving you 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 can be as low as 300 and as high as 800. Higher is always better. Most home buyers probably find their FICO scores falling above 620.
Not just for qualifying
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.
Raising your credit score
How can you raise your FICO score? Since the score is entirely based on a lifetime of credit history, it is difficult to make a significant change in the number with quick fixes. You should remove any incorrect data from your credit report; this is the only way to quickly improve your credit score.
Know your FICO
In order to raise your score, you must get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO from all three reporting agencies, along with your credit report. Also available are information and tools that help you improve your FICO score.
You can get a free credit report every year from all three 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.
Armed with this information, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Want to know more about credit scores? Call us at (800) 288-9693.