Scoring your Credit - How's your FICO?
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Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage comes down to just one number.
Credit reporting agencies use your history of paying all types of loans in order to build a FICO score.
All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO score was developed by Fair Isaac and Company.
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 these methods vary, the differences aren't huge; they all use the following factors to calculate your score:
- Credit History - Have you had credit for many years, or for just a short time?
- Payment History - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you carry? How much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The result is one number. FICO scores range from 300 to 800. Higher scores are better. Typical home buyers likely find their FICO scores falling between 620 and 800.
Not just for qualifying
Did you know? 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.
Raising your credit score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is entirely based on your lifelong credit history, it's very hard to significantly improve the number with quick fixes. (Of course you must have incorrect items removed from your credit report.)
Getting your FICO score
Before you can improve your credit score, you have to obtain your score and make sure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. They also provide helpful information and online tools that help you understand how to improve your credit score.
You can get a free credit report every year from all three agencies when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about credit scores? Call us at 916-989-6222.