FICO - Your Credit Score

Because we live in a computer-driven society, it should come as no surprise that your ability to repay your mortgage boils down to one number. Credit reporting agencies use your payment history to compile this score.

The three reporting agencies use slightly different formulas to build 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 these methods vary, the differences aren't huge; each agency uses the following factors in calculating your credit score:

  • Credit History - How long have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you carry? 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 a little bit differently depending on the formula being used. The result is a single number: your FICO score. FICO scores range from 300 to 800. Higher is always better. Most home buyers in the current environment have a score above 620.

Your FICO score affects your interest rate

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

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

Getting your FICO score

To raise your credit score, you must have the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the original FICO score, offers scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

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.

Want to know more about your credit score? Call us at 7032555810.

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