FICO - Your Credit Score

Since we live in an automated society, it's not surprising that your ability to repay your mortgage boils down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO model was developed by Fair Isaac and Company. 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; each agency uses the following factors to build your credit score:

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

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most people who want to get a mortgage loan in the current environment have a score above 620.

Credit scores make a difference in your interest rate

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.

Improving your score

Is it possible to improve your credit score? So called "credit repair" companies advertise quick fixes, but the score is built on your lifetime credit history, so you can't turn it around right away. (Of course you can and should have incorrect items removed from your credit report.)

Know your FICO score

Before you can improve your FICO score, you have to obtain your score and ensure 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. For a reasonable fee, you can get your FICO from all three agencies, along with your credit report. They also provide helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once per year from all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.

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.

Curious about credit scores? Give us a call at 2146635355.