FICO Credit Scores: What Do They Mean?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage boils down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three agencies use slightly different formulas to build a 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following in calculating a score:

  • Your Credit History - How long have you had credit?
  • History of Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

Each of these factors is assigned a value and a weight. The result is one number. Credit scores range from 300 to 800. Higher is better. Most people who want to get a mortgage loan these days have a score above 620.

FICO makes a huge difference in interest rates

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

Is there any way to raise your FICO score? Because the credit score is entirely based on a lifetime of credit history, it's hard to change it quickly. (Of course you can and should appeal incorrect items on your credit report.)

Getting your FICO score

Before you can improve your credit score, you have to know your score and ensure that the credit reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. They also provide information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

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

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

Curious about credit scores? Give us a call at 5617752724.