About the FICO Credit Score
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Since we live in a computer-driven world, it's not surprising that your ability to repay your mortgage comes down to just one number. Credit reporting agencies use your history of paying loans to compile this score.
TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have a proprietary formula for building a credit score. The original FICO model was developed by FairIsaac 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, each agency uses the following to build your credit score:
• Credit History - How many years have you had credit?
• Late Payments - Do you pay your bills on time?
• Credit Card Balances - How many accounts do you carry? How much do you owe?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The result is a single number: your credit score. FICO scores can be as low as 300 and as high as 850. Higher scores are better. Most home buyers have a score above 620.
FICO makes a difference in interest rates:
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.
Improving your score:
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the score is built on your lifetime credit history, so it's not possible to raise it significantly in the short term. Make sure you contact the reporting agency with any errors on your credit report and have them corrected. This is the only "quick fix" for credit troubles.
How do I find out my credit score?
In order to raise your credit score, you need to obtain the 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. For a reasonable fee, you can get your FICO from all three agencies, along with your credit report. They also provide information and online tools that can help you improve your FICO score. Consult Asset Alliance Mortgage before requesting any credit report.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about your FICO score? Give us a call: (760) 632-7701.