About the FICO Credit Score

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage comes down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Each of the three credit reporting agencies has its own formula for building your 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, the differences aren't huge; they all use the following in calculating your credit score:

  • Your Credit History - How many years have you had credit?
  • Late Payments - Have you paid more than 30 days late?
  • Your Credit Card Balances - How many accounts do you hold? How much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little by agency. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers these days have a score above 620.

Credit scores make a big difference in interest rates

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 FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the FICO score is built on your lifelong credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)

Getting your credit score

To improve your score, you've got to get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that invented the original FICO credit score, offers scores on myFICO.com. For a reasonable fee, you can get your FICO score from all three agencies, along with your credit report. They also provide information and tools that can help you improve your FICO score.

You can get a federally-mandated free credit report once a year from all three credit reporting agencies by visiting 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.

Now that you have all the facts, 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? Call us: (650) 689-5684.

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