About the FICO Credit Score
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan boils down to just one number.
Credit reporting agencies use your history of paying loans to build your FICO score.
All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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, each agency uses the following to determine your credit score:
- Credit History - How long have you had credit?
- History of Payments - Have you paid more than 30 days late?
- Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
- Credit Inquiries - How many times have you had your credit checked for a loan?
Each of these factors is assigned a value and a weight. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most borrowers who want to get a mortgage loan these days score 620 or above.
Your score greatly affects your monthly payment
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.
Raising your FICO 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. You should, of course, remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.
How do I find out my credit score?
In order to improve your credit score, you've got to obtain the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that invented the original FICO credit score, sells credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. They also provide information and online tools that 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. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.
Armed with this info, you'll 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? Call us at 801.255.6582.