How's your FICO Score?
Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan comes down to just one number.
This score is built by credit agencies. These agencies use the payment history of your various loans: mortgages, car loans, credit cards, and others.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO model was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, the differences aren't huge; all of the agencies use the following to build a credit score:
- Credit History - How many years have you had credit?
- Late Payments - Have you paid more than 30 days late?
- Your Credit Card Balances - How many credit card accounts do you have, and how much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?
Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly by agency. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers will likely find their FICO scores falling between 620 and 800.
Not just for qualifying
Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.
Improving your score
What can you do to improve your FICO score? Very little in the short term. Because the FICO score is based on your lifelong credit history, it's difficult to change it quickly. (Of course you can and should appeal incorrect items on your credit report.)
How do I find out my credit score?
Before you can improve your FICO score, you must know your score and make certain that the credit reports from each agency are correct. Fair Isaac, the company that offered the original FICO score, sells credit scores on myFICO.com. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a year from all three credit reporting agencies when you visit 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 information, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about credit scores? Give us a call at (337) 264-9990.