You Credit Score- How's Your FICO?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. Credit reporting agencies use your history of paying all types of loans in order to compile your FICO score.

Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary 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 build a credit score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Do you have a history of late payments?
  • Your Credit Card Balances - How many accounts do you have? How much do you owe on your accounts?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which varies slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers in the current environment have a score above 620.

Your credit score greatly affects your interest rate

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.

Improving your score

What can you do to raise your FICO score? Unfortunately, not much. Since the credit score is based on a lifetime of credit history, it's very hard to change it quickly. You should, of course, appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

How do I find out my FICO score?

Before you can improve your FICO score, you must obtain your score and ensure that the reports from each agency are correct. Fair Isaac, the corporation that offered the original FICO score, offers credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. Also available are information and online tools that help you improve your credit score.

You can get a federally-mandated free credit report once a year from all three agencies at AnnualCreditReport.com. These reports do not include a free credit 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 obtain the right mortgage for you.

Curious about your credit score? Give us a call: 877-310-6200.

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