You Credit Score: How's Your FICO?

Since we live in a computer-driven world, you're probably not surprised to hear that your ability to repay your mortgage boils down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three agencies use slightly different formulas to build a credit score. The original FICO model was developed by Fair Isaac and Company. 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to determine a score:

  • Your Credit History - How long have you had credit?
  • Payment History - Have you paid more than 30 days late, and how often?
  • Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted a little bit differently depending on which formula the agency uses. 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 is better. Most borrowers who want to get a mortgage loan in the current environment have a score above 620.

Your credit score greatly affects your interest rate

FICO 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.

Improving your score

How can you improve your credit score? Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifetime credit history, so you can't turn it around right away. You should, of course, appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

Know your FICO score

Before you can improve your FICO score, you have to get your score and make certain that the credit reports from each agency are correct. Fair Isaac, the corporation that offered the first FICO score, offers scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. Also available are 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 the three major agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

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 your FICO score? Call us: 972-932-9083.


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