FICO - Your Credit Score
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan boils down to a single number.
The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
The three credit reporting agencies use slightly different formulas to build a credit score. The original FICO score 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; they all use the following in building a credit score:
- Your Credit History - How long have you had credit?
- Payment History - Have you paid more than 30 days late, and how often?
- Your Credit Card Balances - How many accounts do you have? How much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?
These factors are weighted differently depending on the formula being used. The result is a single number: your credit score. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers likely find their FICO scores falling above 620.
Your FICO score greatly affects how much you pay in interest every month
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 a better credit risk, and thus may qualify for a better mortgage rate.
Can I raise my FICO score?
How can you raise your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should appeal incorrect items on your credit report.)
Getting your FICO score
To raise your FICO score, you've got to have the reports that the agencies use to build it. Of course, you need the score as well. 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 reporting agencies, along with your credit report. Also available are information and tools that can help you understand how to improve your credit score.
You can get a federally-mandated free credit report once a year from the three major 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 very inexpensive.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Want to know more about credit scores? Call us: 919-787-6080.