You Credit Score: How's Your FICO?

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

Each of the three credit agencies has its own formula for building your 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to calculate your credit score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Late Payments - Do you have a history of late payments?
  • Your Credit Card Balances - How many accounts do you have, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted a little bit differently depending on which formula the agency uses. The result is one number. FICO scores range from 300 to 800. Higher is always better. Most folks getting a mortgage score 620 or above.

FICO makes a big difference in interest rates

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

Raising your credit score

Is there any way to raise your FICO score? Because the score is based on a lifetime of credit history, it is difficult to significantly improve the score with quick fixes. You must appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

Getting your credit score

To improve your score, you've got to obtain the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that offered the original FICO credit score, offers FICO scores on myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. They also provide 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 every year from all three 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.

Now that you have all the facts, 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 (408) 255-3978.