How's your FICO Score?

Since we live in an automated world, it should come as no surprise 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 compile a FICO score.

Equifax, TransUnion, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit score. The original FICO was developed by Fair Isaac and Company. 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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following to calculate your credit score:

  • Your Credit History - Have you had credit for years, or for a short time?
  • Payment History - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe on them?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted slightly differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most borrowers who want to get a mortgage have a score above 620.

Not just for qualifying

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

How can you improve your credit score? Since the credit score is entirely based on your lifelong credit history, it is difficult to significantly improve the score with quick fixes. (Of course you can and should remove incorrect data on your credit report.)

How do I find out my credit score?

To improve your credit score, you must obtain the credit reports that the agencies use to build it. Of course, you need the score as well. 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 along with credit reports from all three credit reporting agencies. They also provide helpful information and online tools that help you improve your FICO score.

You can get a federally-mandated free credit report once per year from the three major agencies when you visit AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

Armed with this information, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about your credit score? Give us a call at 435-755-6622.