FICO - Your Credit Score

Since we live in an automated society, it's not surprising that your ability to repay your mortgage boils down to just one number. This score is compiled by credit agencies. They use the payment history from all of your loans: mortgages, car loans, credit cards, etcetera.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. Fair Isaac and Cooriginally developed this score. . 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, each agency uses the following to build a credit score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Payment History - Do you have any payments later than 30 days?
  • 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 credit score. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers probably find their FICO scores between 620 and 800.

Your score affects your monthly payment

Did you know? Credit 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.

Can I raise my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the score is entirely based on your lifelong credit history, it is hard to change it quickly. (Of course you can and should appeal incorrect items on your credit report.)

How do I find out my FICO score?

Before you can improve your credit score, you have to get your score and ensure that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that offered the original FICO score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. They also provide helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once a year from the three major 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.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Call us at 949-544-4908.

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