Scoring your Credit - How's your FICO?
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage boils down to just one number.
The FICO score is created by credit agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle/boat loans, credit cards, etcetera.
The three agencies use slightly different formulas to build 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 the formulas vary, all of the agencies use the following to determine your credit score:
- Credit History - How long have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
- Credit Inquiries - 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. Each formula produces a single number which may vary slightly by agency. FICO scores range from 300 to 800. Higher is better. Typical home buyers probably find their credit scores above 620.
FICO makes a difference in interest rates
Did you know? 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.
Raising your credit score
How can you raise your credit score? Since the FICO score is entirely based on a lifetime of credit history, it is hard 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.
Know your FICO
Before you can improve your score, you must know your score and make certain that the reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, offers credit scores on its website: myFICO.com. For a reasonable fee, you can get your FICO score from all three agencies, along with your credit report. Also available are information and online tools that help you understand how to improve your FICO score.
You can get a free credit report once a year from the three major credit reporting 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 info, 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 (909) 467-1090.