About the FICO Credit Score
Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number.
Credit reporting agencies use your history of paying loans to build this score.
Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building a credit score. Fair Isaac and Cooriginally developed this score. .
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, the differences aren't huge; they all use the following in calculating your score:
- Your Credit History - Have you had credit for years, or for just a short time?
- History of Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you hold? How much do you owe on your accounts?
- Credit Inquiries - 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 result is a single number: your credit score. Credit scores range from 300 to 800. Higher is better. Most people who want to get a mortgage in the current environment have a score above 620.
Credit scores make a difference in interest rates
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.
Improving your score
What can you do to raise your FICO score? Very little in the short term. Because the score is based on your lifelong credit history, it's difficult to change it quickly. You must, of course, remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.
Know your FICO
To improve your score, you've got to get the 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. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. They also provide helpful information and online tools that help you understand how to improve your credit score.
You can get a free credit report every year from all three credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.
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? Call us: (512) 422-9036.