How's your FICO Score?
Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number.
The FICO score is compiled by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car/boat loans etcetera.
All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO 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 each of the models considers a range of data available in your credit report, each agency uses the following to determine a credit score:
- Your Credit History - Have you had credit for years, or for a short time?
- Payment History - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
Each of these is assigned a value and a weight. The result is one number. Credit scores range from 300 to 800. Higher is better. Typical home buyers will likely find their scores above 620.
Your credit score greatly affects your monthly payment
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.
Can I raise my FICO score?
What can you do about your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifetime credit history, so you can't turn it around right away. (Of course you must remove incorrect data on your credit report.)
Getting your FICO score
Before you can improve your score, you must obtain your score and make sure that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that invented the first FICO score, offers scores on myFICO.com. It's inexpensive to get your FICO from all three reporting agencies, along with your credit report. They also provide helpful information and online tools that help you understand how to improve your credit score.
You can get a federally-mandated free credit report once a year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.
Armed with this info, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about your credit score? Give us a call: 405-513-7700.