About the FICO Credit Score
Because we live in an automated, it's probably not that surprising that your ability to repay your mortgage comes down to a single number.
The FICO score is compiled by credit reporting agencies. They use the payment history from all of your loans: mortgages, car/motorcycle/boat loans, credit cards, etcetera.
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; all of the agencies use the following in calculating your score:
- Credit History - How long have you had credit?
- Payment History - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe on them?
- Inquiries on Your Credit - 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. FICO scores range from 300 to 800. Higher is always better. Most home buyers probably find their FICO scores falling between 620 and 800.
Your credit score greatly affects your monthly payment
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.
Can I improve my credit score?
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is based on a lifetime of credit history, it's hard to change it quickly. You must remove any incorrect data from your credit report; this is the only way to quickly improve your credit score.
Getting your FICO score
Before you can improve your credit score, you must get your score and be sure that the credit reports from each agency are correct. Fair Isaac, the corporation that offered the original FICO credit score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide helpful 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 when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.
Armed with this information, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about your FICO score? Call us at (808) 935-0678.