You Credit Score: How's Your FICO?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following in calculating a credit score:

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

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers in the current environment have a score above 620.

FICO makes a big difference in interest rates

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 credit score

Is there any way to improve your credit score? Because the FICO score is entirely based on your lifelong credit history, it is difficult to change it quickly. (Of course you must remove incorrect data on your credit report.)

Getting your FICO score

Before you can improve your credit score, you have to get your score and make certain that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that offered the first FICO score, offers credit scores on myFICO.com. It's inexpensive to get your FICO from all three agencies, along with your credit report. Also available are helpful information and 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 a year from the three major agencies when you visit AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about credit scores? Call us: (207) 571-8034.