You Credit Score: How's Your FICO?
Because we live in a computer-driven society, it's probably not that surprising that your ability to repay your mortgage loan comes down to a single number.
This score is created by credit agencies. These agencies use the payment history of all of your loans: mortgages, car loans, credit cards, and others.
Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary from one agency to another, each agency uses the following to calculate a credit score:
- Credit History - How long have you had credit?
- Late Payments - Have you paid more than 30 days late?
- Credit Card Balances - How many accounts? How much do you owe on your accounts?
- Requests for Credit - How many times have you had your credit checked for a loan?
Each of these factors is assigned a value and a weight. The result is one number. Credit scores range from 300 to 800. Higher is better. Most people who want to get a mortgage these days score 620 or above.
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 a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my FICO score?
What can you do to improve your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must remove incorrect data on your credit report.)
How do I find out my credit score?
Before you can improve your FICO score, you must get your score and make certain that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that invented the original FICO score, sells credit scores on its website: myFICO.com. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are information and online tools that help you improve your FICO score.
You can get a federally-mandated free credit report once a year from all three agencies by visiting AnnualCreditReport.com. These reports do not include a free 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 obtain the most favorable mortgage.
Want to know more about credit scores? Give us a call: (512) 422-9036.
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