How's your FICO Score?
Since we live in an automated, you're probably not surprised to hear that your ability to repay your mortgage comes down to one number.
Credit reporting agencies use your history of paying all types of loans to build this score.
Each of the three credit agencies has its own 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 the formulas vary, each agency uses the following to calculate a credit score:
- Credit History - How long have you had credit?
- Late Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
- Requests for 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. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher scores are better. Most folks getting a mortgage 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. Lenders give lower interest rates to individuals with higher scores.
Raising your credit score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.
How do I find out my FICO score?
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 credit score, sells FICO scores on myFICO.com. 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 tools that can help you understand how to improve your FICO score.
You can get a federally-mandated free credit report once a year from the three major agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.
Armed with this information, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about your credit score? Give us a call at (401) 583-4150.