You Credit Score- How's Your FICO?

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

The three credit reporting agencies use slightly different formulas to build 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; they all use the following to calculate your score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • Payment History - Do you have any payments later than 30 days?
  • Credit Card Balances - How many accounts do you carry? How much do you owe?
  • 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 which formula the agency uses. Each formula produces a single number which may vary slightly by agency. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers these days have a score above 620.

FICO makes a big difference in interest rates

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 a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my FICO score?

Is there any way to improve your FICO score? Because the credit score is entirely based on your lifelong credit history, it's hard to significantly improve the score with quick fixes. You must remove any incorrect data on your credit report; this is the only way to quickly improve your credit score.

Know your FICO score

In order to improve your FICO score, you must obtain the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that offered the first FICO credit score, sells credit scores on its website: myFICO.com. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are information and tools that can help you improve your credit score.

You can get a free credit report every year from the three major agencies by visiting AnnualCreditReport.com. These reports do not include a free 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 most favorable mortgage.

Curious about credit scores? Call us: 561-395-4264.