How's your FICO Score?
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage comes down to a single number.
The FICO score is created by credit reporting agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat loans and the like.
Each of the three credit reporting 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 these methods vary from one agency to another, all of the agencies use the following to determine a credit score:
- Your Credit History - Have you had credit for many years, or for a short time?
- History of Payments - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Credit Inquiries - How many times have lenders pulled your credit for the purpose of giving you a loan?
These factors are assigned weights based on the formula being used. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers in the current environment have a score above 620.
Your FICO score greatly affects how much you pay in interest every month
Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Raising your credit score
Is there any way to raise your FICO score? Since the score is based on your lifelong credit history, it is hard to change it quickly. You should appeal for the credit agency to remove any incorrect reporting on your credit report; this is the only way to quickly improve your credit score.
Know your FICO score
Before you can improve your credit score, you have to know your score and make certain that the credit reports from each reporting agency are correct. Fair Isaac, the company that invented the original FICO credit score, offers scores on myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. Also available are helpful information and tools that can 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. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.
Armed with this info, 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? Call us: (832) 730-2000.