How's your FICO Score?
Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan comes down to just one number.
Credit reporting agencies use your loan payment history in order to build this score.
The three reporting 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 each of the models considers a range of data available in your credit report, the differences aren't huge; each agency uses the following in building a 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 have, and how much do you owe?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Typical home buyers probably find their FICO scores falling between 620 and 800.
Credit scores make a big difference in your interest rate
Did you know? 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 raise your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must appeal incorrect items on your credit report.)
Know your FICO score
Before you can improve your credit score, you have to get your score and make sure that the credit reports from each reporting agency are correct. Fair Isaac, the company that invented the original FICO score, sells credit scores on myFICO.com. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are 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 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.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about credit scores? Call us at 978-422-2311.