How's your FICO Score?

Since we live in an automated world, it's not surprising that your ability to repay your mortgage comes down to a single number. Credit reporting agencies use your history of paying all types of loans to create your FICO score.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building a credit score. The original FICO 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, the differences aren't huge; they all use the following to build a credit score:

  • Credit History - Have you had credit for years, or for just a short time?
  • Payment History - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
  • Requests for Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most borrowers getting a mortgage these days score 620 or above.

Credit scores make a difference in interest rates

FICO 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.

Raising your FICO score

How can you raise your FICO score? Since the FICO score is entirely based on a lifetime of credit history, it's hard to change it quickly. (Of course you must have incorrect items removed from your credit report.)

How do I find out my FICO score?

Before you can improve your FICO score, you have to obtain your score and be sure that the reports from each agency are correct. Fair Isaac, the corporation that offered the original FICO credit score, sells credit scores on myFICO.com. It's inexpensive to get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that can help you improve your credit score.

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

Armed with this info, 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: 8165258000.