You Credit Score: How's Your FICO?

Because our society is so computer-driven, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. This score is compiled by credit reporting agencies. These agencies use the payment history from your various loans: mortgages, car loans, credit cards, 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following to build your score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - 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 assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers likely find their FICO scores falling between 620 and 800.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

How can you improve your credit score? Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you must appeal incorrect items on your credit report.)

Know your FICO

Before you can improve your credit score, you have to get your score and make sure that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the first FICO score, offers scores on its website: myFICO.com. It's inexpensive to quickly get your FICO from all three reporting agencies, along with your credit report. They also provide information and online tools that help you improve your credit score.

You can get a federally-mandated free credit report every year from all three credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

Armed with this info, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

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

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