You Credit Score- How's Your FICO?
Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan boils down to a single number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit agencies has its own formula for building your credit score. The original FICO model was developed by
Fair Isaac and Company. 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 these methods vary, the differences aren't huge; all of the agencies use the following factors to calculate your score:
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Your Credit History - How long have you had credit?
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Late Payments - Have you paid more than 30 days late?
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Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
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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 results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most people who want to get a mortgage loan score 620 or above.
Your credit score affects your interest rate
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
What can you do to raise your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must appeal incorrect items on your credit report.)
How do I find out my FICO score?
Before you can improve your credit score, you have to obtain your score and ensure 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. For a reasonable fee, you can get your FICO score from all three reporting agencies, along with your credit report. They also provide information and online tools that help you improve your credit score.
You can get a free credit report every year from all three 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.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Want to know more about your FICO score?