About the FICO Credit Score
Because our world is so computer-driven, you're probably not surprised to hear that your ability to repay your mortgage loan comes down to one number.
Credit reporting agencies use your payment history to compile this score.
TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have a proprietary 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 these methods vary from one agency to another, each agency uses the following to build your score:
- Credit History - How long have you had credit?
- Payment History - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts do you carry? How much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are assigned weights based on the formula being used. Each formula produces a single number which varies slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers in the current environment have a score above 620.
Not just for qualifying
FICO scores affect more than your ability to get a loan. They also affect your interest rate. 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. So called "credit repair" companies advertise quick fixes, but the score is built on your lifelong credit history, so it's not possible to raise it significantly in the short term. You must, of course, appeal for the credit agency to remove any incorrect data from your credit report; this is really the only "quick fix" for credit troubles.
How do I find out my credit score?
Before you can improve your credit score, you have to obtain your score and be sure that the reports from each agency are correct. Fair Isaac, the corporation that invented the first FICO score, sells FICO scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. Also available are helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a year from all three agencies at 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.
Want to know more about your FICO score? Give us a call: 952 417 8481.