Scoring your Credit - How's your FICO?
Because we live in a computer-driven world, you're probably not surprised to hear that your ability to repay your mortgage loan boils down to a single number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit agencies has its own 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, all of the agencies use the following to calculate your credit score:
- Credit History - How long have you had credit?
- Payment History - Do you pay your bills on time?
- Your Credit Card Balances - How many accounts do you hold? How much do you owe?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers probably find their scores falling between 620 and 800.
Your score affects how much you pay in interest every month
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.
Can I improve my credit score?
Is it possible to improve your credit score? Since the credit score is based on your lifelong credit history, it is hard to significantly improve the number with quick fixes. (Of course you can and should remove incorrect data on your credit report.)
How do I find out my credit score?
To improve your credit score, you've got to get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the first FICO score, offers credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. They also provide information and tools that can help you improve your FICO score.
You can get a free credit report once a year from the three major credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.
Armed with this info, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Want to know more about your credit score? Call us: 866-584-4650.