How's your FICO Score?
Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage comes down to a single number.
Credit reporting agencies use your history of paying loans to build a FICO score.
All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO was developed by Fair Isaac and Company.
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 these methods vary, each agency uses the following to determine your credit score:
- Credit History - How long have you had credit?
- History of Payments - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many accounts do you carry? How much do you owe on your accounts?
- Requests for Credit - How many times have you had your credit checked for a loan?
Each of these is assigned a value and a weight. Each formula produces a single number which may vary a a little by agency. Credit scores range from 300 to 800. Higher is better. Most borrowers getting a mortgage loan in the current environment have a score above 620.
Your FICO score greatly affects 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
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.)
Know your FICO score
Before you can improve your score, you have to get your score and be sure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. They also provide information and online 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 all three credit reporting agencies when you visit 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'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about credit scores? Give us a call at 877-310-6200.
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