Scoring your Credit - How's your FICO?

Because our society is so computer-driven, it should come as no surprise that your ability to repay your mortgage boils down to one number. Credit reporting agencies use your history of paying all types of loans in order to compile this score.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, each agency uses the following to build a score:

  • Your Credit History - How long have you had credit?
  • Payment History - Do you have a history of late payments?
  • Your Credit Card Balances - How many accounts do you hold, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted slightly differently depending on the formula being used. The result is one number. Credit scores range from 300 to 800. Higher is better. Most home buyers in the current environment have a score above 620.

Your FICO score greatly affects your interest rate

Did you know? 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.

Raising your FICO score

Is there any way to improve your credit score? Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you must have incorrect items removed from your credit report.)

Getting your FICO score

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

You can get a free credit report once a year from the three major credit reporting 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.

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? Give us a call: 703.255-5810.

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