About the FICO Credit Score
Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage comes down to a single number.
The FICO score is created by credit reporting agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, etcetera.
The three credit reporting agencies use slightly different formulas to build a 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 these methods vary from one agency to another, each agency uses the following to calculate a credit score:
- Credit History - How long have you had credit?
- Payment History - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
- Credit Inquiries - How many times have you had your credit checked for a loan?
Each of these factors is assigned a value and a weight. The result is a single number: your credit score. FICO scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.
Not just for qualifying
FICO scores affect more than your ability to get a loan. They also affect your interest rate. 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. So called "credit repair" companies advertise quick fixes, but the FICO score is built on your lifetime credit history, so you can't turn it around right away. You must, of course, appeal for the credit agency to remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.
How do I find out my FICO score?
To improve your score, you must obtain the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that offered the first FICO credit score, sells 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. They also provide helpful information and 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 per year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it 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 obtain the right mortgage for you.
Want to know more about credit scores? Give us a call at 435-755-6622.