Scoring your Credit - How's your FICO?

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Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage boils down to a single number. The FICO score is built by credit reporting agencies. These agencies use the payment history of all of your loans: mortgages, car loans, credit cards, and others.

Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have a proprietary formula for building a credit score. The original FICO score 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 from one agency to another, all of the agencies use the following to calculate your credit score:

  • Credit History - Have you had credit for years, or for a short time?
  • Payment History - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these is assigned a value and a weight. Each formula produces a single number which may vary slightly by agency. FICO scores can be as low as 300 and as high as 850. Higher scores are better. Most home buyers in the current environment have a score above 620.

Your FICO score affects how much you pay in interest every month

Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Improving your 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 lifetime credit history, so you can't turn it around right away. (Of course you must appeal incorrect items on your credit report.)

How do I find out my credit score?

In order to improve your FICO score, you've got to have the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. Also available are helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from the three major 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.

Armed with this information, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about credit scores? Call us at (888) 888-1172.