About the FICO Credit Score
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage boils down to a single number.
This score is compiled by credit agencies. These agencies use the payment history of your various loans: mortgages, car loans, credit cards, and others.
Each of the three credit reporting agencies has its own formula for building your 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 calculating a credit score:
- Your Credit History - How many years have you had credit?
- Payment History - Do you have any payments later than 30 days?
- Credit Card Balances - How many accounts? How much do you owe on your accounts?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are weighted slightly differently depending on the formula being used. Each formula produces a single number which varies slightly by agency. FICO scores range from 300 to 800. Higher is better. Most home buyers probably find their credit scores between 620 and 800.
FICO makes a huge 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. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
What can you do to improve 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.)
How do I find out my credit score?
In order to raise your FICO score, you've got to get the credit reports that the agencies use 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. It's inexpensive to get your FICO score from all three agencies, along with your credit report. They also provide 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. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about your credit score? Give us a call: 978-422-2311.