FICO - Your Credit Score

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to just one number. The FICO score is compiled by credit agencies. These agencies use the payment history from your various loans: credit cards, mortgages, car loans and the like.

Each of the three credit agencies has its own formula for building your credit score. The original FICO score 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, each agency uses the following to determine your credit score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Do you pay your bills on time?
  • Your Credit Card Balances - How many accounts do you have? How much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are assigned weights based on the formula being used. Each formula produces a single number which varies slightly by agency. FICO scores range from 300 to 800. Higher is better. Typical home buyers likely find their scores falling above 620.

Your FICO score affects your interest rate

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.

Raising your credit score

What can you do about 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. You should, of course, appeal for the credit agency to remove any incorrect reporting on your credit report; this is the only way to quickly improve your credit score.

Know your FICO

To raise your FICO score, you've got to get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that invented the original FICO credit score, sells scores on its website: myFICO.com. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. They also provide information and online tools that can help you understand how to improve your FICO score.

You can get a free credit report once per year from all three credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about credit scores? Call us at 435-755-6622.