Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to a single number. Credit reporting agencies use your payment history in order to create this score.
The original FICO score was developed by Fair Isaac and Company. The three credit reporting agencies: Experian, Equifax, and Transunion use slightly different formulas to build a credit score. While these methods vary, the differences aren't huge; each agency uses the following factors in calculating a score:
Credit History - Have you had credit for many years, or for just a short time?
Late Payments - Have you paid more than 30 days late, and how often?
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?
These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a little from one agency to another. FICO scores range from 300 to 850. Higher is always better. Most folks who want to get a mortgage loan score 620 or above.
Did you know? 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.
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the FICO score is based on a lifetime of credit history, it is hard to significantly improve the number with quick fixes. You should, of course, appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit troubles.
To raise your credit score, you must obtain the reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a website (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. Also available are information and tools that help you improve your FICO score.
You can get a federally-mandated free credit report every year from all three agencies at 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 obtain the most favorable mortgage.
Want to know more about credit scores? Give us a call: (619) 825-9560.