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 comes down to a single number. This score is compiled by credit reporting agencies. They use the payment history of your various loans: mortgages, car loans, credit cards, and the like.

TransUnion, Equifax, and Experian, the three major credit agencies, each have their own proprietary formula for building 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, the differences aren't huge; they all use the following to calculate your score:

  • Your Credit History - How long have you had credit?
  • History of Payments - Do you pay your bills on time?
  • Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. The result is one number. FICO® scores range from 300 to 800. Higher scores are better. Most people getting a mortgage loan these days score 620 or above.

Not just for qualifying

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.

Improving your score

How can you raise your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must, of course, remove any incorrect reporting on your credit report; this is the only way to quickly improve your credit score.

Know your FICO® score

In order to improve your credit score, you've got to have the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the first FICO® score, offers FICO® scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. Also available are 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 once per 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 most favorable mortgage.

Want to know more about your FICO® score? Call us at (214) 736-9466.