FICO - Your Credit Score

Because we live in an automated, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. This score is created by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car loans and the like.

The three agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally 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; all of the agencies use the following factors in calculating a score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • Late Payments - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many accounts do you have, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which varies slightly by agency. Credit scores range from 300 to 800. Higher scores are better. Most borrowers who want to get a mortgage have a score above 620.

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

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is based on a lifetime of credit history, it is hard to change it quickly. You must remove any incorrect reporting on your credit report; this is the only "quick fix" for credit troubles.

Know your FICO score

In order to raise your credit score, you must get the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the original FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. They also provide information and online tools that can help you improve your credit score.

You can get a free credit report once per year from all three credit reporting agencies when you visit 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.

Armed with this information, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

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