You Credit Score: How's Your FICO?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage loan boils down to a single number. This score is created by credit agencies. These agencies use the payment history from all of your loans: credit cards, mortgages, car loans etcetera.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 calculate a score:

  • Credit History - Have you had credit for many years, or for a short time?
  • Late Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. Credit scores range from 300 to 800. Higher scores are better. Most people who want to get a mortgage loan in the current environment have a score above 620.

Not just for qualifying

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.

Can I raise my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should have incorrect items removed from your credit report.)

Know your FICO

In order to raise your FICO score, you've got to get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that can help you understand how to improve your credit score.

You can get a free credit report once per year from the three major 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 information, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about credit scores? Give us a call at 3038627760.