You Credit Score- How's Your FICO?
Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage boils down to a single number.
Credit reporting agencies use your payment history in order to build a FICO score.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO model was developed by Fair Isaac and Company.
Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While these methods vary, each agency uses the following to determine a credit score:
- Credit History - Have you had credit for years, or for a short time?
- History of Payments - Do you have any payments later than 30 days?
- Credit Card Balances - How many accounts do you carry? How much do you owe?
- Credit Inquiries - 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 is always better. Most people getting a mortgage in the current environment score 620 or above.
FICO makes a big difference in interest rates
Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Can I raise my FICO score?
Is it possible to raise your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must remove incorrect data on your credit report.)
Getting your FICO score
In order to improve your credit score, you've got to get 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 reporting agencies, along with your credit report. Also available are helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report every year from the three major credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
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 credit scores? Give us a call: 978-422-2311.