You Credit Score: How's Your FICO?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage loan comes down to just one number. Credit reporting agencies use your history of paying loans in order to create a FICO score.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO model was developed by Fair Isaac and Company. Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While the formulas vary, the differences aren't huge; all of the agencies use the following to calculate a credit score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Payment History - Do you have a history of late payments?
  • Your Credit Card Balances - How many credit card accounts do you have, and how much do you owe?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers these days have a score above 620.

Your score affects how much you pay in interest every month

Did you know? 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 FICO score?

How can you improve your credit score? Since the credit score is based on your lifelong credit history, it is hard to change it quickly. You should, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only "quick fix" for credit problems.

How do I find out my FICO score?

In order to raise your credit score, you've got to have the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the original FICO score, offers scores on myFICO.com. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and online tools that help you improve your credit score.

You can get a free credit report once per year from all three credit reporting agencies at AnnualCreditReport.com. These reports do not include a free credit 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 right mortgage for you.

Curious about your credit score? Give us a call at 866-840-8745 x2.