About the FICO Credit Score
Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number.
The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Experian, TransUnion, and Equifax, the three major credit agencies, each have their own proprietary 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following factors in calculating a score:
- Credit History - Have you had credit for years, or for a short time?
- History of Payments - Have you paid more than 30 days late, and how often?
- Your Credit Card Balances - How many accounts do you have, and how much do you owe on them?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are weighted slightly differently depending on which formula the agency uses. The result is one number. FICO scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.
FICO makes a difference in your interest rate
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.
Improving your score
What can you do to improve your FICO score? Unfortunately, not much. Because the FICO score is entirely based on your lifelong credit history, it is difficult to make a significant improvement in the score with quick fixes. (Of course you must remove incorrect data on your credit report.)
Getting your credit score
Before you can improve your FICO score, you must know your score and ensure that the credit reports from each credit reporting agency are correct. 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. Also available are helpful information and online tools that help you understand how to improve your credit score.
You can get a free credit report once a year from the three major agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about credit scores? Call us: (440) 234-9660.