You Credit Score: How's Your FICO?
Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage loan comes down to just one number.
Credit reporting agencies use your payment history in order to create this score.
The three agencies use slightly different formulas to build a credit score. The original FICO score was developed by Fair Isaac and Company.
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 build a credit score:
- Credit History - How many years have you had credit?
- History of Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which varies slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most borrowers getting a mortgage loan these days have a score above 620.
Not just for qualifying
Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.
Raising your FICO score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is entirely based on your lifelong credit history, it is difficult to make a significant change in the score with quick fixes. (Of course you can and should have incorrect items removed from your credit report.)
Getting your FICO score
In order to improve your score, you've got to get the credit reports that the agencies use to build it, and of course, you need the score itself. 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 as well as credit reports from all three agencies. They also provide information and tools that help you understand how to improve your FICO score.
You can get a free credit report once per year from all three agencies when you visit 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 credit score? Call us: (207) 571-8034.