Scoring your Credit - How's your FICO?
Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage comes down to just one number.
Credit reporting agencies use your history of paying all types of loans to compile a FICO score.
Each of the three credit reporting 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, the differences aren't huge; all of the agencies use the following factors in calculating your credit score:
- Your Credit History - Have you had credit for many years, or for a short time?
- Late Payments - Do you pay your bills on time?
- Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
- Inquiries on Your 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. Each formula produces a single number which may vary slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most folks getting a mortgage these days score 620 or above.
Your FICO score affects your monthly payment
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Raising your FICO score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is built on your lifetime credit history, so you can't turn it around right away. You should appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit troubles.
How do I find out my credit score?
To improve 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, the company that offered the first FICO credit score, sells scores on myFICO.com. For a reasonable fee, you can get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that can help you improve your FICO score.
You can get a free credit report once per year from all three agencies by visiting AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.
Armed with this information, you'll 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.