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 loan boils down to just one number.
The FICO score is created by credit reporting agencies. They use the payment history of your various loans: mortgages, car/motorcycle/boat loans, credit cards, and others.
The three reporting agencies use slightly different formulas to build a credit 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following factors in building your credit score:
- Your Credit History - How long have you had credit?
- History of Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you have? How much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Most people getting a mortgage loan these days have a score above 620.
Your FICO score greatly affects how much you pay in interest every month
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
Is it possible to raise your credit score? Because the score is entirely based on your lifelong credit history, it's very difficult to change it quickly. You should appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit troubles.
Know your FICO
Before you can improve your credit score, you must obtain your score and be sure that the reports from each agency are correct. Fair Isaac, the corporation that invented the original 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 credit reporting agencies. Also available are information and online tools that help you understand how to improve your credit score.
You can get a free credit report every year from the three major 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.
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 credit scores? Call us at (718) 477-4405.