How's your FICO Score?
Since our society is so automated, it should come as no surprise that your ability to repay your mortgage comes down to a single number.
The FICO score is built by credit reporting agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle loans, credit cards, and the like.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 the formulas vary from one agency to another, the differences aren't huge; each agency uses the following in calculating your credit score:
- Your Credit History - How long have you had credit?
- Payment History - Do you pay your bills on time?
- Credit Card Balances - How many credit card accounts do you have, and how much do you owe?
- Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?
These factors are weighted slightly differently depending 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 scores are better. Most folks getting a mortgage these days have a score above 620.
Credit scores make a big difference in interest rates
Did you know? 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.
Improving your score
What can you do to raise your FICO score? Very little in the short term. Since the FICO score is based on your lifelong credit history, it's very 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 "quick fix" for credit troubles.
Getting your FICO score
Before you can improve your score, you have to know your score and ensure that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that offered the first FICO score, sells credit scores on myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. Also available are helpful information and tools that help you improve your FICO score.
You can get a free credit report once a year from all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.
Armed with this information, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about your FICO score? Call us at (602) 332-9544.