How's your FICO Score?
Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to just one number.
Credit reporting agencies use your history of paying loans to create this score.
The three credit reporting agencies use slightly different formulas to build a credit score. The original FICO was developed by Fair Isaac and Company.
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 factors to build your credit score:
- Your Credit History - Have you had credit for many years, or for just a short time?
- Payment History - Have you paid more than 30 days late, and how often?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted a little bit 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 scores are better. Most people getting a mortgage loan in the current environment score 620 or above.
Your score affects your interest rate
Did you know? 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 credit score?
How can you improve your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should remove any incorrect data on your credit report; this is the only way to quickly improve your credit score.
Know your FICO
In order to improve your score, you must have the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO from all three reporting agencies, along with your credit report. Also available are helpful information and tools that help you understand how to improve your FICO score.
You can get a free credit report once a year from all three credit reporting 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'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Want to know more about your FICO score? Give us a call at 248-644-1200.
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