April 21st, 2022 1:02 PM by Holly Ecimovic
Are you in the process of buying a home in Florida, and wondering how your credit score will affect your buying power? This article is for you!
Since we live in an automated world, it's not surprising that your ability to repay your mortgage boils down to a single number. Credit reporting agencies use your history of paying loans in order to create this score.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score.
Fair Isaac and Co. originally developed this score. 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 the formulas vary from one agency to another, the differences aren't huge; they all use the following factors to build a score:
• Credit History - How many years have you had credit?
• History of Payments - Do you have a history of late payments?
• Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
• Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are weighted differently depending on which formula the agency uses. The result is a single number: your FICO score.
Credit scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.
Your score greatly 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 credit score
What can you do to raise your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must have incorrect items removed from your credit report.)
Getting your credit score
In order to improve your credit score, you've got to obtain the reports that are used 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. It's inexpensive, fast, and easy to get your credit score, as well as credit reports from all three reporting agencies. Also available are information and online tools that can help you understand how to improve your FICO score.
You can get a free credit report once a year from all three agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about your credit score? Give us a call: 407-834-3377.