You Credit Score: How's Your FICO?

Since our world is so automated, you're probably not surprised to hear that your ability to repay your mortgage boils down to one number. The FICO score is built by credit agencies. They use the payment history of your various loans: credit cards, mortgages, car loans etcetera.

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 the formulas vary from one agency to another, the differences aren't huge; they all use the following to calculate a score:

  • Credit History - Have you had credit for many years, or for just a short time?
  • History of Payments - Have you paid more than 30 days late?
  • Credit Card Balances - How many accounts do you have? How much do you owe?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted slightly 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 always 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. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the score is formulated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You should remove any incorrect reporting from your credit report; this is the only "quick fix" for credit problems.

Getting your FICO score

Before you can improve your score, you must know your score and make sure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. Also available are helpful information and online 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 every year from all three agencies when you visit 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 info, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Give us a call at 3039317879.

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