How's your FICO Score?
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to just one number.
Credit reporting agencies use your payment history in order to compile your FICO score.
Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building a 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; they all use the following factors to build your score:
- Credit History - Have you had credit for many years, or for just a short time?
- 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 you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. Each formula produces a single number which varies slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers in the current environment have a score above 620.
Your credit score greatly affects your monthly payment
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
Is there any way to improve your FICO score? Since the credit score is entirely based on a lifetime of credit history, it's very hard to significantly improve the score with quick fixes. (Of course you must remove incorrect data on your credit report.)
Getting your FICO score
In order to improve your FICO score, you must get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the first FICO score, sells FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. Also available are helpful information and online 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 a year from all three credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one 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 credit scores? Call us: 4056158543.