You Credit Score: How's Your FICO?
Since we live in an automated world, it's not surprising that your ability to repay your mortgage comes down to just one number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
The three reporting agencies use slightly different formulas to build a 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, the differences aren't huge; each agency uses the following factors to calculate your credit score:
- Credit History - How many years have you had credit?
- Payment History - Have you paid more than 30 days late, and how often?
- Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
- Inquiries on Your Credit - 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. The result is one number. Credit scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.
Not just for qualifying
Did you know? Credit 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.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifetime credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)
How do I find out my FICO score?
In order to raise your credit score, you've got to have the reports that are used 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. For a reasonable fee, you can get your FICO score from all three reporting agencies, along with your credit report. They also provide information and online tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report once a year from all three agencies when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Armed with this information, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about credit scores? Call us: 1-800-606-2794.