How's your FICO Score?
Because we live in a computer-driven society, you're probably not surprised to hear that your ability to repay virtually any loan comes down to a single number.
The FICO score is compiled by credit reporting agencies. These agencies use the payment history from all of your loans: mortgages, car loans, credit cards, and others.
All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 each of the models considers a range of data available in your credit report, each agency uses the following to calculate a credit score:
- Your Credit History - How long have you had credit?
- History of Payments - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are weighted differently depending on the formula being used. The result is one number. FICO scores range from 300 to 800. Higher is always better. Most folks getting a mortgage loan these days have a score above 620.
Credit scores make a big difference in your interest rate
Did you know? 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
What can you do about your FICO score? Unfortunately, not much. 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 appeal incorrect items on your credit report.)
Getting your credit score
Before you can improve your score, you have to know your score and ensure that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that invented the first FICO score, offers scores on its website: myFICO.com. For a reasonable fee, you can get your FICO from all three agencies, along with your credit report. Also available are helpful information and tools that can help you improve your credit score.
You can get a federally-mandated free credit report once per year from the three major agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Armed with this information, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about credit scores? Give us a call at (972) 292-0448.