You Credit Score: How's Your FICO?

Since our society is so automated, it's probably not that surprising that your ability to repay your mortgage comes down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at 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 each of the models considers a range of data available in your credit report, each agency uses the following to determine your score:

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

These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers likely find their credit 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. Lenders give lower interest rates to individuals with higher scores.

Raising your credit score

What can you do to raise your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should remove any incorrect reporting from your credit report; this is really the only way to quickly improve your credit score.

Getting your FICO score

Before you can improve your credit score, you have to get your score and make sure that the reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO from all three reporting agencies, along with your credit report. 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 all three credit reporting 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 information, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about your FICO score? Give us a call: 949-544-4908.

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