You Credit Score: How's Your FICO?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage boils down to a single number.
The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
TransUnion, Equifax, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit score. Fair Isaac and Cooriginally developed this score. .
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, the differences aren't huge; all of the agencies use the following in building a score:
- Your Credit History - How long have you had credit?
- Payment History - Do you have a history of late payments?
- Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most borrowers who want to get a mortgage in the current environment score 620 or above.
Your FICO score greatly affects your interest rate
FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my FICO score?
Is it possible to raise your credit score? Because the credit score is entirely based on your lifelong credit history, it's very difficult to change it quickly. (Of course you must remove incorrect data on your credit report.)
How do I find out my credit score?
Before you can improve your credit score, you have to know your score and make sure that the reports from each agency are correct. Fair Isaac, the company that offered the original FICO credit score, offers credit scores on myFICO.com. It's inexpensive to get your FICO from all three 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 free credit report once per year from the three major credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about your FICO score? Give us a call at (440) 234-9660.