About the FICO Credit Score
Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage loan comes down to a single number.
Credit reporting agencies use your history of paying all types of loans in order to build this score.
All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. Fair Isaac and Cooriginally developed this score. .
Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While the formulas vary, the differences aren't huge; they all use the following factors to calculate a credit score:
- Credit History - How long have you had credit?
- Payment History - Do you have a history of late payments?
- Your Credit Card Balances - How many accounts do you carry? 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 assigned weights based on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most borrowers who want to get a mortgage these days have a score above 620.
Credit scores make a big 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 improve my FICO 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. (Of course you can and should have incorrect items removed from your credit report.)
Getting your credit score
In order to improve your score, you've got to get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that offered the first FICO score, offers scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. They also provide information and online 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 once a year from the three major credit reporting 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.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Want to know more about your FICO score? Give us a call at (512) 335-7800.