How's your FICO Score?
Since our world is so computer-driven, it's probably not that surprising that your creditworthiness comes down to a single number.
This score is built by credit reporting agencies. They use the payment history from all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and others.
TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have a proprietary formula for building 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; each agency uses the following to calculate your score:
- Credit History - How long have you had credit?
- Payment History - Have you paid more than 30 days late, and how often?
- Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
- 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. Each formula produces a single number which may vary a a little from one agency to another. Credit scores range from 300 to 800. Higher scores are better. Most borrowers who want to get a mortgage loan in the current environment score 620 or above.
Credit scores make a huge difference in interest rates
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.
Raising your FICO score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the FICO score is based on your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should remove incorrect data on your credit report.)
Know your FICO score
Before you can improve your credit score, you must obtain your score and be sure that the credit reports from each credit 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 along with reports from all three credit reporting agencies. They also provide information and online tools that can help you improve your credit score.
You can get a federally-mandated free credit report once a year from the three major agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
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.
Curious about credit scores? Give us a call at (949) 486-3777.