Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan boils down to just one number. Credit reporting agencies use your history of paying all types of loans in order to build a FICO score.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 the formulas vary from one agency to another, all of the agencies use the following to determine your score:
- Credit History - Have you had credit for years, or for just a short time?
- History of Payments - Do you pay your bills on time?
- Credit Card Balances - How many accounts do you hold, 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 assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is always better. Most people who want to get a mortgage loan score 620 or above.
Credit scores make a huge difference in your interest rate
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my FICO score?
Is there any way to raise your FICO score? Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifetime credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)
Getting your FICO score
Before you can improve your FICO score, you must obtain your score and make sure that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that offered the original FICO score, offers scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. Also available are helpful information and tools that can help you improve your credit score.
You can get a federally-mandated free credit report every year from all three credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very 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 credit scores? Call us: 954-605-2450.