You Credit Score- How's Your FICO?
Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage boils down to a single number.
The FICO score is built by credit agencies. They use the payment history of all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.
The three 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, all of the agencies use the following to build your score:
- Credit History - How long have you had credit?
- Payment History - Do you have a history of late payments?
- Balances on your Credit Cards - How many credit card 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 weighted slightly differently depending on which formula the agency uses. 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 likely find their scores falling between 620 and 800.
Credit scores make a 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. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the FICO score is based on your lifelong credit history, it's difficult to significantly improve the number with quick fixes. (Of course you can and should have incorrect items removed from your credit report.)
Know your FICO score
Before you can improve your credit score, you have to know your score and make sure that the reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. They also provide helpful information and tools that can help you improve your FICO score.
You can get a federally-mandated free credit report once per year from the three major agencies by visiting AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.
Armed with this information, 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? Call us at (718) 639-9500.