FICO - Your Credit Score
Since we live in an automated world, it's not surprising that your ability to repay your mortgage comes down to just one number.
This score is built by credit reporting agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat 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 a credit score:
- Your Credit History - How many years have you had credit?
- Payment History - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts do you have, and how much do you owe on them?
- Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?
Each of these is assigned a value and a weight. The result is one number. Credit scores range from 300 to 800. Higher is better. Most home buyers these days have a score above 620.
Not just for qualifying
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.
Can I improve my FICO score?
What can you do to raise your FICO score? Very little in the short term. Since the credit score is entirely based on your lifelong credit history, it's hard to make a significant change in the score with quick fixes. (Of course you must have incorrect items removed from your credit report.)
Getting your FICO score
In order to raise your FICO score, you must obtain the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that invented the original FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. 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 federally-mandated free credit report once per year from the three major credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.
Armed with this information, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about your credit score? Give us a call at 6263394445.