About the FICO Credit Score
Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage boils down to just one number.
Credit reporting agencies use your payment history in order to build your FICO score.
Each of the three credit agencies has its own formula for building your credit score. The original FICO score was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following in calculating a credit score:
- Credit History - Have you had credit for years, or for a short time?
- History of Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
- Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?
These factors are assigned weights based 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. Most home buyers will likely find their credit scores falling between 620 and 800.
FICO makes a difference in your interest rate
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 credit score?
What can you do to raise your FICO score? Very little in the short term. Because the FICO score is entirely based on a lifetime of credit history, it's very hard to change it quickly. You must remove any incorrect reporting from your credit report; this is the only "quick fix" for credit problems.
Know your FICO
Before you can improve your FICO score, you have to know your score and make certain that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the first FICO score, offers credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. Also available are information and online tools that help you improve your FICO score.
You can get a federally-mandated free credit report once a year from the three major 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.
Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Want to know more about your credit score? Give us a call: 708.966.9005.