How's your FICO Score?

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage comes down to a single number. This score is built by credit agencies. These agencies use the payment history of your various loans: mortgages, car/motorcycle/boat loans, credit cards, etcetera.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. Fair Isaac and Cooriginally developed this score. . 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; each agency uses the following factors to calculate a score:

  • Your Credit History - How many years have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Your Credit Card Balances - How many accounts do you have? How much do you owe on your accounts?
  • Requests for Credit - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most borrowers getting a mortgage in the current environment have a score above 620.

Not just for qualifying

Credit 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.

Can I raise my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifetime credit history, so you can't turn it around right away. You must, of course, remove any incorrect reporting from your credit report; this is really the only "quick fix" for credit problems.

Know your FICO

To raise your credit score, you've got to get the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. Also available are helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once per year from the three major credit reporting 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.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about your FICO score? Give us a call: 3038627760.