Scoring your Credit - How's your FICO?

Because our society is so automated, it should come as no surprise that your ability to repay your mortgage boils down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Each of the three credit 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following factors to build a score:

  • Credit History - How many years have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

Each of these factors is assigned a value and a weight. The result is a single number: your credit score. 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.

Your FICO score affects your monthly payment

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 credit score?

How can you raise your credit score? Since the FICO score is based on your lifelong credit history, it's very difficult to significantly improve the number with quick fixes. You must, of course, remove any incorrect data on your credit report; this is the only way to quickly improve your credit score.

Know your FICO

To improve your credit score, you've got to obtain the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the first FICO credit score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide helpful information and online tools that help you understand how to improve your FICO score.

You can get a free credit report once per year from the three major credit reporting agencies when you visit 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? Give us a call at 214-663-5355.