About the FICO Credit Score
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to a single number.
The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own 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, the differences aren't huge; all of the agencies use the following in building your score:
- Credit History - How long have you had credit?
- Payment History - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you have? How much do you owe?
- Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are weighted slightly differently depending on the formula being used. The result is a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher is always better. Typical home buyers will likely find their credit scores falling above 620.
Your FICO score greatly affects how much you pay in interest every month
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?
How can you improve your credit score? Since the score is entirely based on a lifetime of credit history, it is hard to significantly improve the score with quick fixes. (Of course you must remove incorrect data on your credit report.)
Know your FICO score
In order to improve your score, you've got to get the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that invented the original FICO score, offers scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. Also available are helpful information and online tools that can help you improve your FICO score.
You can get a federally-mandated free credit report once per year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about your FICO score? Give us a call: (303) 228-2254.