You Credit Score- How's Your FICO?
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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. Credit reporting agencies use your loan payment history to build this score.
The three reporting agencies use slightly different formulas to build 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 the formulas vary, each agency uses the following to build your score:
- Your Credit History - Have you had credit for many years, or for a short time?
- Payment History - Do you pay your bills on time?
- Your Credit Card Balances - How many accounts do you have, 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 differently depending on which formula the agency uses. The result is a single number: your FICO score. Credit scores range from 300 to 800. Higher is better. Typical home buyers will likely find their credit scores falling between 620 and 800.
Your FICO score affects your monthly payment
Credit 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
What can you do to improve your FICO score? Very little in the short term. Since the FICO score is entirely based on a lifetime of credit history, it's hard to make a significant change in the number with quick fixes. (Of course you must have incorrect items removed from your credit report.)
How do I find out my FICO score?
Before you can improve your FICO score, you must get your score and ensure that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that offered the original FICO score, sells FICO scores on its website: myFICO.com. It's inexpensive to quickly get your FICO from all three reporting agencies, along with your credit report. Also available are helpful information and online 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 once per year from the three major agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very 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 credit score? Give us a call at (512) 292-3494.