How's your FICO Score?
Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage comes down to a single number.
Credit reporting agencies use your payment history in order to create this score.
Each of the three credit agencies has its own formula for building your credit score. The original FICO model was developed by Fair Isaac and Company.
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 to build a score:
- 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 giving you a loan?
These factors are assigned weights based 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 is better. Most home buyers will likely find their scores falling between 620 and 800.
Credit scores make a big difference in interest rates
FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my credit score?
What can you do to raise your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must have incorrect items removed from your credit report.)
Know your FICO
Before you can improve your score, you have to get your score and make certain that the reports from each credit reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. They also provide information and tools that can 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 the three major agencies when you visit AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about your FICO score? Call us: (440) 234-9660.