Scoring your Credit - How's your FICO?

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. This score is compiled by credit agencies. They 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 their own proprietary formula for building a 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 the formulas vary from one agency to another, the differences aren't huge; all of the agencies use the following factors in calculating a score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • History of Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts do you hold? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

Each of these factors is assigned a value and a weight. The result is a single number: your credit score. FICO scores range from 300 to 800. Higher scores are better. Most borrowers who want to get a mortgage loan have a score above 620.

Credit scores make a big difference in your interest rate

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Raising your credit score

How can you improve your credit score? Since the credit score is entirely based on your lifelong credit history, it's difficult to make a significant change in the score with quick fixes. (Of course you can and should appeal incorrect items on your credit report.)

Know your FICO score

In order to improve your score, you must get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the original FICO credit score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. 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 every year from the three major credit reporting agencies at 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 get the most favorable mortgage.

Curious about your FICO score? Call us at 866-840-8745 x2.