Scoring your Credit - How's your FICO?
Since our society is so computer-driven, you're probably not surprised to hear that your ability to repay your mortgage comes down to a single number.
The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at 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, all of the agencies use the following to calculate a credit score:
- Credit History - Have you had credit for many years, or for just a short time?
- Late Payments - Do you pay your bills on time?
- Balances on your Credit Cards - 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 factors is assigned a value and a weight. Each formula produces a single number which may vary slightly from one agency to another. FICO scores range from 300 to 800. Higher is better. Most home buyers likely find their credit scores falling between 620 and 800.
FICO makes a huge difference in your interest rate
Did you know? 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.
Improving your score
Is it possible to improve your credit score? So called "credit repair" companies advertise quick fixes, but the FICO score is calculated from your lifetime credit history, so you can't turn it around right away. You must, of course, appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.
Getting your credit score
To raise your credit score, you've got to have the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO score from all three agencies, along with your credit report. Also available are information and tools that help you improve your FICO score.
You can get a free credit report every year from all three credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about credit scores? Call us: (512) 335-7800.