About the FICO Credit Score
Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage loan comes down to just one number.
The FICO score is compiled by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car/boat loans and others.
All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at 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 factors to calculate a credit score:
- Your Credit History - Have you had credit for years, or for just a short time?
- Late Payments - Do you have a history of late payments?
- Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
- Credit Inquiries - How many times have you had your credit checked for a loan?
Each of these is assigned a value and a weight. The result is a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most folks who want to get a mortgage score 620 or above.
Your score affects your monthly payment
Did you know? FICO 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 FICO score
Is it possible to improve your credit score? Since the score is entirely based on your lifelong credit history, it's hard to make a significant change in the score with quick fixes. You should remove any incorrect reporting from your credit report, which is the only "quick fix" for credit troubles.
Know your FICO score
Before you can improve your FICO score, you must get your score and ensure that the reports from each 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 as well as credit reports from all three credit reporting agencies. They also provide information and online tools that help you improve your credit score.
You can get a federally-mandated free credit report once a year from all three credit reporting 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 information, you will 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? Give us a call at (772) 252-6724.
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