About the FICO Credit Score
Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to a single number.
Credit reporting agencies use your payment history to create this score.
Each of the three credit agencies has its own 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 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 factors in building a score:
- Your Credit History - Have you had credit for years, or for a short time?
- History of Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for 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 scores are better. Most home buyers likely find their credit scores falling between 620 and 800.
Not just for qualifying
Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my FICO score?
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is entirely based on your lifelong credit history, it's very difficult to change it quickly. (Of course you can and should have incorrect items removed from your credit report.)
Getting your credit score
Before you can improve your credit score, you have to know your score and be sure that the reports from each agency are correct. Fair Isaac, the company that offered the original FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that can help you improve your FICO score.
You can get a free credit report once per year from the three major credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.
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 credit scores? Give us a call at (303) 228-2254.