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Scoring your Credit - What is your FICO?
In today's increasingly 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. All the years you've been paying your mortgage, car payments, and credit card bills can be analyzed, sliced, and diced into a single indicator of whether you're likely to meet your future obligations.
All 3 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 (hence the name). While each of the models considers a range of data available in your credit report, the primary factors are:
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- Credit History - How long have you had credit? - 35%
- Payment History - Do you pay your bills on time? - 15%
- Credit Type Mix - Revolving, installment, etc..
- Credit Card Balances - How much do you owe on your accounts? - 30%
- New Credit & Credit Inquiries - How many times have you had your credit checked? - 10%
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Each of these, and other items, are assigned a value and a weight. The results are added up into a single number. FICO scores range from 300 to 850, with higher being better. Typical home buyers likely find their scores are between 600 and 850. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
FICO scores are used for more than just determining whether or not you qualify for a mortgage. What can you do about your FICO score? Unfortunately, not much. Since the score is based on a lifetime of credit history, it is difficult to make a significant change in the number with quick fixes.
The most important thing is to know your FICO score and to ensure that your credit history is correct.
Conveniently, Fair Isaac has created a web site (www.myFICO.com) that let's you do just that. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available is some helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score. Each of the credit services offers similar services on their web sites: www.equifax.com, www.experian.com, and www.transunion.com.
If you are interested in finding out more information please visit our HomeBuyer Bootcamp website.
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