You Credit Score- How's Your FICO?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan boils down to a single number.
Credit reporting agencies use your history of paying loans to create a FICO score.
Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have a proprietary formula for building your 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 these methods vary from one agency to another, all of the agencies use the following to calculate a credit score:
- Your Credit History - Have you had credit for years, or for just a short time?
- History of Payments - Have you paid more than 30 days late, and how often?
- Your Credit Card Balances - How many accounts do you have? How much do you owe on your accounts?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Most home buyers in the current environment have a score above 620.
Credit scores make a huge difference in your interest rate
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.
Can I improve my credit 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 remove incorrect data on your credit report.)
Getting your FICO score
Before you can improve your credit score, you have to know your score and be sure that the credit 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, fast, and easy to get your credit score as well as credit reports from all three agencies. Also available are information and online tools that help you improve your credit score.
You can get a federally-mandated free credit report every year from all three credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about your FICO score? Call us: (718) 477-4405.