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 loan comes down to a single number. Credit reporting agencies use your payment history to compile your FICO score.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO model 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, the differences aren't huge; all of the agencies use the following factors in calculating your score:

  • Credit History - How many years have you had credit?
  • Payment History - Have you paid more than 30 days late, and how often?
  • Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted differently depending on which formula the agency uses. The result is a single number: your credit score. FICO scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.

FICO makes a huge difference in your interest rate

Did you know? 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.

Can I raise my credit score?

What can you do to raise your FICO score? Very little in the short term. Since the score is based on a lifetime of credit history, it is difficult to significantly improve the number with quick fixes. (Of course you must remove incorrect data on your credit report.)

Know your FICO

Before you can improve your credit score, you have to obtain your score and make sure that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that offered the original FICO credit score, offers credit scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. Also available are information and online tools that can help you understand how to improve your FICO score.

You can get a free credit report once a year from the three major agencies at 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'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about your credit score? Call us at 5617752724.