When it comes to buying a home, your credit score is a crucial factor that influences your mortgage options and interest rates. While “credit score” is a broad term, the FICO score is one of the most commonly used models by lenders. Lets take a closer look at what this means and how you can take ownership of your credit score.
What is a FICO score?
A FICO score is a specific type of credit score developed by the Fair Isaac Corporation. It ranges from 300 to 850, with higher scores indicating lower risk to lenders. For example, a score of 700 is generally considered good, while a score of 620 is often the minimum needed for conventional loans (a 580 and up can slide for an FHA loan).
FICO Score vs. credit score
While “credit score” refers to any numerical representation of your creditworthiness, the FICO score is a specific model within that umbrella. Other scoring models, like VantageScore, also exist, but FICO is the go-to choice for most mortgage lenders.
Will a mortgage lender use my FICO score?
Yes! When you apply for a mortgage, lenders typically pull your FICO score to evaluate your creditworthiness. They may obtain this score from one or more of the major credit bureaus: Experian, Equifax, and TransUnion. Each bureau may have slightly different information, which can lead to variations in your score.
- Example: Let’s say you’re applying for a mortgage, and your FICO scores are 720 (Experian), 715 (Equifax), and 710 (TransUnion). The lender may use the middle score (715) to assess your eligibility.
How to stay updated on your FICO score
Staying informed about your FICO score is essential as you prepare for home buying. Here are practical steps you can take:
- Use Credit Monitoring Services: Sign up for services like Credit Karma or MyFICO. These platforms provide regular updates on your FICO score and alerts for any significant changes. For example, Credit Karma updates your scores weekly and provides tips for improvement.
- Check with Your Credit Card Issuer: Many credit card companies, like Wells Fargo and Chase, offer free access to your FICO score. Log into your online account or app to see if this feature is available. It’s a quick way to keep tabs on your credit health.
- Get a Free Credit Report: You can request a free credit report once a year from each of the three major credit bureaus through AnnualCreditReport.com. While this won’t show your FICO score, it provides a detailed look at your credit history. Check for errors, such as incorrect late payments, which can negatively impact your score.
- Sign Up for a FICO Score Subscription: Consider subscribing to MyFICO for comprehensive access to your scores from all three bureaus. This service provides insights into what affects your score and offers educational resources on improving it.
- Check Your Score Regularly: Make it a habit to check your FICO score monthly or quarterly. For instance, if you plan to buy a home in six months, check your score every month to monitor your progress and address any issues promptly.
- Monitor for Changes: Keep an eye out for any changes that could affect your score. For example, if you open a new credit card, it may temporarily lower your score. If you see a drop, review your credit report to understand the cause and take action if necessary.
By staying informed and taking action, you’ll put yourself in the best position for a successful home-buying experience. Remember, a little effort now can lead to significant savings and peace of mind in the long run!
If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.
