You Credit Score- How's Your FICO?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan boils down to just one number. The FICO score is built by credit agencies. They use the payment history of your various loans: mortgages, car/motorcycle loans, credit cards, and others.
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 the formulas vary from one agency to another, all of the agencies use the following to determine a score:
- Credit History - How long have you had credit?
- History of Payments - Have you paid more than 30 days late?
- Your Credit Card Balances - How many accounts do you hold, and how much do you owe?
- Inquiries on Your Credit - 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 a single number: your FICO score. Credit scores range from 300 to 800. Higher scores are better. Most home buyers probably find their FICO scores above 620.
Credit scores make a huge difference in interest rates
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.
Can I raise my FICO score?
Is it possible to raise your FICO score? So called "credit repair" companies advertise quick fixes, but the score is built on your lifelong credit history, so you can't turn it around right away. You must appeal for the credit agency to remove any incorrect data from your credit report; this is really the only way to quickly improve your credit score.
How do I find out my credit score?
To raise your credit score, you must have 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 to quickly get your FICO from all three agencies, along with your credit report. They also provide information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once per year from all three agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Armed with this information, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.