About the FICO Credit Score

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage comes down to just one number. This score is compiled by credit reporting agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat loans and the like.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO score was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, the differences aren't huge; they all use the following factors to build your score:

  • Your Credit History - Have you had credit for years, or for a short time?
  • History of Payments - Have you paid more than 30 days late?
  • Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which varies slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers these days have a score above 620.

Not just for qualifying

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Can I raise my credit score?

Is it possible to improve your credit score? Because the FICO score is entirely based on a lifetime of credit history, it is hard to change it quickly. (Of course you must appeal incorrect items on your credit report.)

Getting your FICO score

Before you can improve your credit score, you have to obtain your score and ensure that the reports from each agency are correct. Fair Isaac, the corporation that offered the original FICO credit score, offers credit scores on myFICO.com. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. They also provide helpful information and tools that help you understand how to improve your credit score.

You can get a free credit report once per year from all three credit reporting agencies by visiting 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 right mortgage for you.

Want to know more about credit scores? Call us at 407-834-3377.

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