How's your FICO Score?
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number.
This score is built by credit agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, and the like.
The three credit 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 from one agency to another, each agency uses the following to determine a credit score:
- Your Credit History - How many years have you had credit?
- History of Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?
Each of these factors is assigned a value and a weight. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most people who want to get 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.
Can I improve my credit score?
Is there any way to improve your FICO score? Because the FICO score is based on your lifelong credit history, it is hard to change it quickly. (Of course you must appeal incorrect items on your credit report.)
Getting your FICO score
To raise your score, you've got to have the reports that are used to build it. Of course, you need the score as well. 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 from all three reporting agencies, along with your credit report. Also available are helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once per year from all three credit reporting agencies by visiting 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 most favorable mortgage.
Curious about credit scores? Give us a call at (941) 366-5800.