You Credit Score- How's Your FICO?
Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage boils down to just one number. Credit reporting agencies use your loan payment history to build this score.
The three credit 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 these methods vary from one agency to another, all of the agencies use the following to build a score:
- Your Credit History - How long have you had credit?
- Payment History - Do you have a history of late payments?
- Credit Card Balances - How many accounts? How much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are weighted slightly 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. Most folks who want to get a mortgage in the current environment have a score above 620.
FICO makes a difference in your interest rate
FICO 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 improve my credit score?
Is there any way to improve your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.
How do I find out my credit score?
Before you can improve your credit score, you have to obtain your score and make certain that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. Also available are information and tools that help you understand how to improve your FICO score.
You can get a free credit report every year from all three 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 get the most favorable mortgage.