About the FICO Credit Score

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan boils down to just one number. The FICO score is created by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car loans and others.

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. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, each agency uses the following to calculate your credit score:

• Your 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 accounts do you hold, and how much do you owe on them?
• Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on the formula being used. Each formula produces a single number which varies slightly by agency. FICO scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers will probably find their scores above 620.

Your FICO score greatly affects how much you pay in interest every month

Credit 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.

Improving your score

What can you do to improve your FICO score? Unfortunately, not much. Since the score is entirely based on a lifetime of credit history, it is hard to change it quickly. You must, of course, remove any incorrect reporting on your credit report; this is really the only "quick fix" for credit troubles.

Know your FICO score

To raise your credit score, you must obtain the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that offered the original FICO credit score, sells scores on its website: myFICO.com. For a reasonable fee, you can get your FICO from all three agencies, along with your credit report. They also provide helpful information and online tools that help you understand how to improve your credit score.

You can get a federally-mandated free credit report once per year from all three credit reporting agencies by visiting AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

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.

Want to know more about credit scores? Call us at 4357556622.