FICO - Your Credit Score

Since our world is so automated, you're probably not surprised to hear that your ability to repay virtually any loan comes down to a single number. This score is built by credit reporting agencies. They use the payment history of all of your loans: mortgages, car loans, credit cards, and the like.

Each of the three credit agencies has its own formula for building your credit score. The original FICO 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, all of the agencies use the following to calculate a credit score:

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

Each of these 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 home buyers have a score above 620.

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

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.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the FICO score is based on your lifelong credit history, it's difficult to make a significant improvement in the score with quick fixes. (Of course you can and should appeal incorrect items on your credit report.)

Know your FICO score

In order to improve your credit score, you must get the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that offered the first FICO score, sells 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 credit reporting agencies. They also provide helpful information and tools that can help you understand how to improve your credit score.

You can get a federally-mandated free credit report once a year from all three 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 obtain the right mortgage for you.

Want to know more about credit scores? Call us at 703.255-5810.

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