How's your FICO Score?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage comes down to a single number.
Credit reporting agencies use your loan payment history to build a FICO score.
The three agencies use slightly different formulas to build a credit score. The original FICO model was developed by Fair Isaac and Company.
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 in calculating a score:
- Credit History - How long have you had credit?
- Late Payments - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts do you have? How much do you owe on your accounts?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted a little bit differently depending on which formula the agency uses. Each formula produces a single number which varies slightly by agency. Credit scores range from 300 to 800. Higher is always better. Typical home buyers will probably find their credit scores falling between 620 and 800.
Your FICO score greatly affects your interest rate
Did you know? Credit 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.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.
How do I find out my FICO score?
Before you can improve your credit score, you must obtain your score and ensure that the reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. Also available are helpful information and online 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 credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about your credit score? Give us a call at 352-369-4200.