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 loan comes down to just one number.
All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
The three reporting agencies use slightly different formulas to build a 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 these methods vary from one agency to another, the differences aren't huge; they all use the following to build your credit score:
- Your Credit History - How many years have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- 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 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 is always better. Most home buyers in the current environment have a score above 620.
FICO makes a difference in interest rates
Did you know? Credit 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.
Raising your credit score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is based on your lifelong credit history, it's very difficult to significantly improve the number with quick fixes. You must, of course, remove any incorrect reporting from your credit report; this is really the only "quick fix" for credit problems.
How do I find out my FICO score?
To improve your score, you must have the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the original FICO credit score, offers FICO scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. They also provide information and online tools that help you understand how to improve your FICO score.
You can get a federally-mandated free credit report every year from the three major agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about credit scores? Give us a call: (317) 288-9434.