You Credit Score: How's Your FICO?
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan comes down to just one number.
Credit reporting agencies use your history of paying loans to create this score.
Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO model was developed by Fair Isaac and Company.
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, the differences aren't huge; each agency uses the following to calculate your credit score:
- Credit History - How long have you had credit?
- History of Payments - Do you pay your bills on time?
- Credit Card Balances - How many accounts do you hold, and how much do you owe on them?
- Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?
These factors are weighted differently depending on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Typical home buyers probably find their FICO scores falling above 620.
Your credit score greatly affects your interest rate
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.
Can I raise my FICO score?
What can you do to improve your FICO score? Unfortunately, not much. So called "credit repair" companies advertise quick fixes, but the score is based on your lifetime credit history, so you can't turn it around right away. You must remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.
Know your FICO score
Before you can improve your FICO score, you have to get your score and be sure that the credit reports from each credit reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as reports from all three reporting agencies. Also available are helpful information and online tools that can help you understand how to improve your FICO score.
You can get a free credit report once per year from all three credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and 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 your credit score? Give us a call: 978-422-2311.
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