You Credit Score- How's Your FICO?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to a single number. This score is created by credit reporting agencies. They use the payment history of all of your loans: mortgages, car loans, credit cards, and others.

Each of the three credit agencies has its own formula for building your credit score. The original FICO score 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 each of the models considers a range of data available in your credit report, the differences aren't huge; each agency uses the following factors to calculate a score:

  • Credit History - Have you had credit for years, or for a short time?
  • History of Payments - Do you pay your bills on time?
  • Your Credit Card Balances - How many accounts do you carry? How much do you owe?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most home buyers likely find their FICO scores falling above 620.

Not just for qualifying

FICO 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.

Can I improve my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the FICO score is entirely based on your lifelong credit history, it's hard to change it quickly. You must remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.

Know your FICO score

In order to raise your FICO score, you've got to get the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that invented the original FICO credit score, offers credit scores on myFICO.com. For a reasonable fee, you can get your FICO score from all three agencies, along with your credit report. They also provide information and tools that can 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 the three major agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Armed with this information, you'll 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 at 4787462063.

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