About the FICO Credit Score
Since we live in an automated society, it's not surprising that your ability to repay your mortgage boils down to a single number.
Credit reporting agencies use your payment history to compile a FICO score.
All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 in building your score:
- Your Credit History - How long have you had credit?
- History of Payments - Do you have a history of late payments?
- Credit Card Balances - How many accounts do you have, and how much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted 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 probably find their scores between 620 and 800.
Your score greatly affects your monthly payment
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
What can you do to improve your FICO score? Very little in the short term. Because the score is entirely based on a lifetime of credit history, it's hard to make a significant improvement in the number with quick fixes. (Of course you can and should have incorrect items removed from your credit report.)
How do I find out my credit score?
Before you can improve your credit score, you must get your score and make certain 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, fast, and easy to get your credit score along with credit reports from all three agencies. Also available are information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report every year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about your FICO score? Call us at (415) 456-7802.