FICO - Your Credit Score

Because our society is so automated, it's probably not that surprising that your ability to repay your mortgage comes down to a single number. Credit reporting agencies use your payment history in order to create your FICO score.

All three major 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. 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 factors in calculating your credit score:

  • Your Credit History - Have you had credit for years, or for just a short time?
  • History of Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you carry? How much do you owe?
  • Inquiries on Your Credit - 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 slightly by agency. Credit scores range from 300 to 800. Higher scores are better. Most borrowers who want to get a mortgage in the current environment have a score above 620.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Raising your FICO 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 calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You must appeal for the credit agency to remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

Getting your credit score

Before you can improve your FICO score, you must get your score and be sure that the reports from each credit reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. They also provide 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 a year from all three credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.

Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about your credit score? Call us at 214-663-5355.