About the FICO Credit Score

Because we live in a computer-driven society, you're probably not surprised to hear that your ability to repay your mortgage boils down to one number. Credit reporting agencies use your loan payment history to compile a FICO score.

The three agencies use slightly different formulas to build a credit score. The original FICO model 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 the formulas vary from one agency to another, the differences aren't huge; all of the agencies use the following in calculating your credit score:

  • Your Credit History - How long have you had credit?
  • History of Payments - Do you have any payments later than 30 days?
  • Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
  • 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. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most folks getting a mortgage score 620 or above.

Your FICO score greatly affects your monthly payment

Did you know? 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.

Improving your score

How can you improve your FICO score? Despite what you hear from "credit repair" companies, the score is based on your lifelong credit history, so it's not possible to raise it significantly in the short term. You should, of course, appeal for the credit agency to remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.

Getting your credit score

To improve your FICO score, you've got to have the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the original FICO credit score, offers scores on its website: myFICO.com. It's inexpensive to 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 every 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'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about your FICO score? Give us a call: 6507631924.

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