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 boils down to just one number.
The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at 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 each of the models considers a range of data available in your credit report, each agency uses the following to determine a score:
- Your Credit History - How many years have you had credit?
- Late Payments - Do you have a history of late payments?
- Your Credit Card Balances - How many accounts? How much do you owe?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which may vary slightly from one agency to another. FICO scores range from 300 to 800. Higher scores are better. Most home buyers have a score above 620.
Not just for qualifying
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Raising your credit score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the score is based on your lifelong credit history, it's very difficult to make a significant improvement in the score with quick fixes. You should, of course, appeal for the credit agency to remove any incorrect data from your credit report; this is really the only way to quickly improve your credit score.
How do I find out my FICO score?
To improve your FICO score, you've got to obtain the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can get your FICO 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 federally-mandated free credit report every year from the three major credit reporting agencies when you visit 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 most favorable mortgage.
Want to know more about credit scores? Call us: 978-422-2311.