How's your FICO Score?
Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage comes down to a single number.
This score is compiled by credit agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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, all of the agencies use the following to build a credit score:
- Credit History - Have you had credit for many years, or for a short time?
- Late Payments - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many accounts do you carry? How much do you owe on your accounts?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
Each of these factors is assigned a value and a weight. The result is a single number: your FICO score. FICO scores range from 300 to 800. Higher scores are better. Most people who want to get a mortgage in the current environment score 620 or above.
Your credit score affects how much you pay in interest every month
Did you know? 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.
Improving your score
What can you do to raise your FICO score? Very little in the short term. Since the score is entirely based on your lifelong credit history, it is hard to change it quickly. (Of course you must have incorrect items removed from your credit report.)
Know your FICO
To improve your score, you've got to get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO score, offers credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. Also available are information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report every year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.
Armed with this information, 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 FICO score? Give us a call: (407) 889-4321.