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 loan boils down to a single number.
Credit reporting agencies use your history of paying loans to compile your FICO score.
Each of the three credit agencies has its own formula for building your credit score. The original FICO score was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary from one agency to another, each agency uses the following to build your score:
- Your Credit History - Have you had credit for years, or for just a short time?
- Payment History - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?
These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers have a score above 620.
Your 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 raise my FICO score?
What can you do about your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should appeal for the credit agency to remove any incorrect data on your credit report; this is really the only way to quickly improve your credit score.
Getting your credit score
To improve your credit score, you must get the reports that are used to build it. Of course, you need the score as well. 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 along with reports from all three reporting agencies. They also provide information and online tools that can help you improve your FICO score.
You can get a free credit report once a year from the three major credit reporting agencies when you visit 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.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about credit scores? Give us a call at 703.255-5810.