FICO - Your Credit Score

Because we live in an automated, it's probably not that surprising that your ability to repay your mortgage loan boils down to one number. Credit reporting agencies use your history of paying all types of loans in order to compile this score.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have a proprietary formula for building your credit score. The original FICO was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, each agency uses the following to build your score:

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

These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. FICO scores range from 300 to 800. Higher is always better. Typical home buyers will probably find their credit scores between 620 and 800.

Credit scores make a difference in your interest rate

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.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the score is formulated from your lifelong credit history, so you can't turn it around right away. (Of course you must remove incorrect data on your credit report.)

Getting your FICO score

To improve your credit score, you've got to get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company that offered the first FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive to get your FICO from all three agencies, along with your credit report. 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 every year from the three major agencies at 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 right mortgage for you.

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

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