How's your FICO Score?
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Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan boils down to a single number.
This score is compiled by credit reporting agencies. They use the payment history of your various loans: credit cards, mortgages, car/boat loans et cetera.
Equifax, TransUnion, 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.
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 the formulas vary from one agency to another, all of the agencies use the following to determine your credit score:
- Your Credit History - How many years have you had credit?
- Late Payments - Do you have a history of late payments?
- Credit Card Balances - How many credit card accounts do you have, 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 differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores range from 300 to 850. Higher scores are better. Most borrowers who want to get a mortgage loan these days have a score above 620.
FICO makes a big difference in interest rates
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 a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my FICO score?
What can you do to improve your FICO score? Very little in the short term. Since the score is entirely based on a lifetime of credit history, it's difficult to make a significant improvement in the score with quick fixes. (Of course you can and should appeal incorrect items on your credit report.)
How do I find out my FICO score?
Before you can improve your FICO score, you must obtain your score and ensure that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, sells FICO scores on myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are information and tools that help you understand how to improve your FICO score.
You can get a federally-mandated free credit report once per year from the three major agencies by visiting AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Armed with this information, 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 credit scores? Give us a call at 872-222-6178.