FICO - Your Credit Score
Because we live in an automated, you're probably not surprised to hear that your ability to repay your mortgage loan comes down to a single number.
This score is compiled by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car loans and the like.
Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, each agency uses the following to build a score:
- Your Credit History - How many years have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many accounts do you hold, and how much do you owe?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are weighted slightly differently depending on the formula being used. Each formula produces a single number which varies slightly by agency. Credit scores range from 300 to 800. Higher is better. Typical home buyers likely find their FICO scores above 620.
FICO makes a difference in your interest rate
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. 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.)
Getting your FICO score
Before you can improve your score, you have to obtain your score and make sure that the credit reports from each reporting agency are correct. Fair Isaac, the company that invented the first FICO credit score, offers FICO scores on its website: myFICO.com. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. Also available are information and online tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report every year from all three credit reporting 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.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about your credit score? Call us at 610-565-3600.