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What is my FICO Score? Credit Reports
In today's automated society, it should come as no surprise that when you apply for a mortgage, your ability to pay can be reduced to a single number- also known as the FICO score. For approximately seven years, three different credit bureaus have likely kept you in their files. (The only way that you would not have a credit score is if you have never had credit at all. This happens sometimes with new citizens or younger borrowers.)
All three of the major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company and used by Experian. Equifax's model is called BEACON, while TransUnion uses EMPIRICA. While each of the models considers a range of data available in your credit report, it seems that the Experian model- the FICO score- is the most popular and accurate.
- Credit History - How long have you had credit?
- Payment History - Do you pay your bills on time? Mortgage "lates" really affect a credit score.
- Credit Card Balances - How much do you owe compared to how much credit? In other words, if your maximum limit is $1000 and your balance is $995, you can count on having a lower score then normal.
- Number of Credit Inquiries - How many times have you had your credit checked in the past couple of months?
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Each of these, and other items, are assigned a value and a weight. The results are added up and converted into a single number. FICO scores range from 300 to 900, with higher being better. Typically, one needs a 640 or better to buy a home, but FHA loans will allow you to purchase a house with even less down. For more on FHA loans, visit this site.
FICO 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.
What can you do about your FICO score? Unfortunately, not much. Since the score is based on seven years of credit history, it is difficult to make a significant change in the number with quick fixes. However, it should be noted that we have seen scores jump 100 points when people pay off all of their credit card debt. It seems that credit card debt is very damaging to the FICO score.
The most important thing is to know your FICO score and to ensure that your credit history is correct.
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