How's your FICO Score?
Since our world is so computer-driven, you're probably not surprised to hear that your ability to repay your mortgage comes down to a single number.
Credit reporting agencies use your history of paying loans in order to create this score.
Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building 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 these methods vary, the differences aren't huge; all of the agencies use the following in calculating a score:
- Your Credit History - How many years have you had credit?
- Payment History - Have you paid more than 30 days late, and how often?
- Credit Card Balances - How many accounts do you hold? How much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers will probably find their FICO scores above 620.
Not just for qualifying
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.
Improving your 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. You must, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only "quick fix" for credit problems.
Know your FICO score
Before you can improve your FICO score, you must know your score and make certain that the credit reports from each agency are correct. Fair Isaac, the corporation that invented the original FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. Also available are helpful information and 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 agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Want to know more about credit scores? Call us at (512) 291-6100.