About the FICO Credit Score
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to just one number.
This score is compiled by credit agencies. They use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, etcetera.
The three agencies use slightly different formulas to build a 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 from one agency to another, each agency uses the following to build your score:
- Credit History - Have you had credit for years, or for a short time?
- Late Payments - Do you have a history of late payments?
- Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted a little bit differently depending on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers will likely find their FICO scores above 620.
Your score affects your monthly payment
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.
Can I improve my FICO score?
How can you improve your FICO score? Because the score is based on a lifetime of credit history, it is hard to significantly improve the score with quick fixes. You should, of course, 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 score, you've got to get the credit reports that the agencies use 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, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. They also provide helpful information and 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 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 right mortgage for you.
Curious about your credit score? Give us a call: (512) 335-7800.